Home insurance scams to watch out for

Updated October 19, 2023

Reviewed By Ross Martin

Table of contents:

1. Phony insurance policies
2. Unscrupulous agents and ghost brokers
3. Roofing scams
4. Arson for profit
5. False inventory and valuables

Home insurance is meant to provide you (and, let’s be real: your lender) with peace of mind. Your insurance policy ensures that your valuable investment is protected in case of unexpected events.

However, not all insurance providers, agents and even policyholders operate with honesty and integrity. Unfortunately, there are unscrupulous individuals and organizations that engage in home insurance scams or insurance fraud, leaving homeowners vulnerable and financially devastated.

In this article, we will explore some of the worst home insurance scams that homeowners should be aware of to protect themselves from falling victim to these deceitful practices.

1. Phony insurance policies

One of the most prevalent home insurance scams involves fake insurance companies that offer policies at significantly lower rates than reputable providers. Homeowners who are enticed by the prospect of saving money may end up paying premiums to non-existent companies. When it's time to make a claim, they realize they have no coverage, resulting in substantial financial losses.

2. Unscrupulous agents and ghost brokers

You might not be afraid of ghosts, but you should be afraid of ghost brokers. Some insurance agents and brokers engage in fraudulent activities by selling policies that provide little to no coverage. Ghost brokers may also take your insurance information and apply for a genuine policy and then cancel it while keeping your payments. You might not see any red flags until you make a damage claim and discover you don’t have an active policy.

Scammers may also manipulate policy details, forge documents or create fictitious policies, leaving homeowners without proper protection. In other cases, these fraudsters may disappear entirely, making it impossible for homeowners to contact them when they need assistance.

How to avoid being scammed

To avoid falling victim to a ghost broker, watch out for agents who:

Advertise cheap insurance on social media.
Only communicate over social media or email, provide limited contact information and are difficult to reach by phone.
Ask for cash-only payments
Don’t provide any paperwork from the insurance carrier

3. Roofing scams

Roofing scams often occur after natural disasters such as hurricanes or storms. Unscrupulous (and potentially unlicensed) contractors may convince homeowners that their roofs have sustained damage and offer to handle the insurance claim process. These contractors inflate repair costs, submit false invoices or perform shoddy repairs, leaving homeowners with subpar work and insurance claims that are later denied due to fraud.

Since 2015, as many as 15% of all home improvement scam reports received by the Better Business Bureau were roof-related projects. These scams are particularly plentiful in Florida, contributing to rising insurance costs^[1].

What to look out for

If your roof is damaged, you should:

Get multiple estimates from licensed and insured contractors
Get a signed contractor before work begins
Work directly with your insurance company throughout the claims process
Do not pay in cash

4. Arson for profit

Not all homeowners insurance scams are perpetrated against homeowners, and in some cases, the policyholder is the criminal. In extreme cases, homeowners resort to arson, intentionally setting their homes on fire to collect on their insurance coverage.

This dangerous and illegal act not only endangers lives but also contributes to higher insurance premiums for other homeowners. Detecting arson can be challenging, but insurance investigators and law enforcement use advanced techniques to identify fraudulent claims and hold perpetrators accountable.

5. False inventory and valuables

This is another one in which the policyholder is defrauding their insurance company. This type of insurance fraud can ultimately lead to higher insurance rates for everyone. Homeowners may exaggerate the value of their belongings or invent non-existent items in their insurance claims after a theft or disaster. Some even go to the extent of staging a burglary or vandalism to support their false claims.

Insurance adjusters and investigators meticulously examine claims to identify discrepancies and prevent fraud. This is why it’s also a good idea to keep an inventory of your belongings to make the claims process go smoother.

Wrapping up

Being aware of these worst home insurance scams is essential for homeowners to protect themselves and their investments. To avoid falling victim to fraud, it's crucial to research insurance providers thoroughly, verify the credentials of agents and brokers, and read policy documents carefully. Additionally, homeowners should be cautious of deals that seem too good to be true and report any suspicious activities to the authorities.

Remember, a reputable insurance provider will always operate transparently, providing clear policy details and excellent customer service. By staying vigilant and informed, homeowners can safeguard their homes, finances, and peace of mind from the clutches of insurance scams.

Source:

Inspection Report Network