Auto Insurance Fraud Penalties and Consequences

June 12, 2013

Auto insurance fraud is becoming an increasingly serious problem in the United States. This type of fraud costs auto insurance agencies billions of dollars every year, which they must compensate for by charging high premiums, even to those who have not committed fraud. Since auto insurance fraud is such a big issue, the penalties for being charged with fraud are severe.

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What is Car Insurance Fraud?
Faking or exaggerating injuries from an accident, staging car theft, or planning a collision are all examples of car insurance fraud. Basically, any act that is meant to procure undeserved financial gain from an auto insurance company is classified as fraud. False insurance claims are a serious problem that costs insurance companies tens of billions of dollars every year. The following points will help you learn more about the issue that is auto insurance fraud.

  • Soft insurance fraud. Soft auto insurance fraud is a more minor offense than hard fraud. Soft fraud means being opportunistic, taking advantage of a situation which has already occurred. If, for example, a person was legitimately injured in a collision but pretended that the injuries received were worse and more painful than they actually were, and received additional monies because of it, that would be soft fraud. Soft fraud is the most common form of insurance fraud because it is very easy to commit and difficult to detect. Especially in cases where neck and back injuries are involved, it is often difficult to determine the true extent of the damage. Because of this, policy holders often exaggerate their pain or disabilities to receive extra compensation.
  • Hard insurance fraud. Hard insurance fraud is a much more serious offense than soft fraud. Hard fraud is deliberately causing an accident, staging a theft or otherwise intentionally setting up a situation where insurance money is at stake with the intent of receiving that money. This type of fraud is less common than soft insurance fraud, but has still cost insurance providers millions of dollars.
  • Frequency of fraud. As previously mentioned, the exaggeration of legitimate injuries received in unplanned accidents is the most common type of auto insurance fraud. This is very easy to do, even without malicious intent, which is why it is so frequent. The next most common form of fraud is staged car theft, followed by the reporting of injuries which never existed at all.
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Common Convictions for Car Insurance Fraud

The penalties for conviction will vary from state to state, but will be classed as either misdemeanors or felonies, depending on how serious the fraud is.

Misdemeanor Car Insurance Fraud
Most car insurance fraud convictions are misdemeanors and for what is generally termed "soft" fraud. These usually mean some form of exaggeration on the claim, or a lie on the insurance application. With applications, lies can vary from where the car is stored (on the street instead of a garage), using someone else's name to purchase insurance, lying about driving convictions or the seriousness of injuries in a minor crash.

There has been a huge rise in fraudulent personal injury claims in recent years, and it can be hard to obtain a conviction for car insurance fraud. Even if it can be proven, it will still only be a misdemeanor.

A misdemeanor conviction for this type of car insurance fraud can result in a fine, probation or even a jail term in extreme cases, although this will never be for more than 5 years. The fine will vary, depending on the seriousness of the offense, but with a misdemeanor it won't go above $15,000.

One significant problem is that the law hasn't caught up with the high levels of sophistication used in auto insurance fraud. All too often, most types of auto insurance fraud are treated as misdemeanors including staged accidents, which have become far more common in recent years. Given the amount of money to be made from staged accidents, many remain undeterred by the relatively low penalties involved. Even if convicted, they are likely to escape with minimal prison terms, simply because of the limits placed by law.

Felony Car Insurance Fraud
To qualify as a felony, the car insurance fraud must involve the destruction of property. In practical terms, this translates to arson, although it would also apply in a staged accident where someone lost their life. Someone might own an expensive car on which they can't afford to keep up payments. Burning it out it to claim the insurance (or paying someone else to do it) becomes an attractive option in some cases.

However, in felony cases, insurance investigators will examine everything far more carefully, which means more convictions for car insurance fraud.

The penalties for felony convictions regarding car insurance fraud are far more severe than for misdemeanors. Probation is unlikely; instead, anyone convicted will serve time in jail and the term will usually run between 5 and 10 years. Where a fine is imposed, it can run all the way up to $150,000 although the exact amount, and limits on jail terms, can vary from state to state.

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Is Faking Grades for Auto Insurance Considered Insurance Fraud?

Car insurance fraud is an all to common occurrence in the United States these days, which is a crime that can be punished using fines and even jail sentences. There are some car insurance companies in the country that offer students, of a specific age, discounts on their car insurance premium if they get good grades in either high school or college. The student driver will need to submit an official copy of their transcript to the car insurance company for discounted grades. If the student decides to change or alter their grades after receiving the transcript, he or she can be found guilty of insurance fraud and be subject to all of its penalties.

Is There a Time Limit for Being Prosecuted for Car Insurance Fraud?

The statue of limitations for prosecuting a car insurance fraud case varies depending on the state in which you committed the crime. Some states employ a two year statute of limitations while others employ a statue of limitations that lasts up to seven years. This means that at any time up to seven years following committing insurance fraud, the suspect can be prosecuted for his or her illegal actions. Anyone found guilty of car insurance fraud is subject to very high fines and even a prison sentence that can range anywhere from a couple of months to a handful of years or more.

A fraud lawsuit brought against you by the insurance provider can land you with a criminal conviction and years in prison depending on the severity of the fraud. In some states you will find yourself paying a fine as well. Here are some more detailed descriptions of the penalties for committing auto insurance fraud.

Criminal Conviction
If you are convicted of committing auto insurance fraud, it will go on your record as criminal activity. Being charged with fraud can make the rest of your life much more difficult, as you will have a harder time finding employment and will be subject to all the social stigma that comes with having a criminal record.

  • Time in prison. In all states, you will have to serve time in prison if you are convicted with car insurance fraud. The minimum and maximum sentences depend on the state in which you reside, but you could spend up to several years in prison.
  • High fines. Again, depending on your state of residence, you could pay tens of thousands of dollars in fines, not to mention restitution monies, if you are charged with committing auto insurance fraud. The maximum fines depend on your state.
  • Raised premiums for all. Since auto insurance fraud costs insurance providers a huge amount of money every year, they compensate by raising insurance premiums. This affects everybody, not just those who have committed fraud. Depending on the state, it has been estimated that the average policy holder pays several hundred dollars more for their policy every year because of fraud committed by other people.
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Avoiding Fraud
Soft fraud is easy to commit even unintentionally. When reporting injuries or damages to insurance companies, you can ensure you do not commit fraud by being completely honest and unbiased in your assessments.

Insurance fraud is an increasingly serious problem for both insurance companies and the people they provide policies to. The penalties for hard fraud are severe, but you can make sure you stay out of trouble by being upfront and honest when reporting claims.

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