DEFINITION of 'Insurance Fraud'
An illegal act on the part of either the buyer or seller of an insurance contract. Insurance fraud from the issuer (seller) includes selling policies from non-existent companies, failing to submit premiums and churning policies to create more commissions. Buyer fraud includes exaggerated claims, falsified medical history, post-dated policies, viatical fraud, faked death or kidnapping, murder and much more.
BREAKING DOWN 'Insurance Fraud'
Insurance fraud is basically an attempt to exploit an insurance contract. Insurance is meant to protect against risks. It isn't meant to be a tool to enrich the insured. Although insurance fraud by the policy issuer still occurs, the majority of cases have to do with the policyholder attempting to receive more money by exaggerating a claim. More sensational instances such as faking one's own death or killing someone for the insurance money are comparatively rare.