Settlement fraud involves deceiving someone to waive a legal right for profit. Debt and life insurance settlements are common targets. Fraudsters pose as debt attorneys or settlement companies, charge upfront fees, and fail to reach agreements. Life settlement fraud targets elderly policyholders with promises of a new policy paid for by a third party. Warning signs include promises that sound too good to be true and offers from strangers. Complaints can be reported to the Better Business Bureau or Attorney General’s Office.
Settlement fraud is the use of deception for profit by convincing another to waive a legal right to a benefit to be received. Two common types of fraud involve debt settlement agreements and life insurance agreements. The first is the deception that you are getting a debt relief transaction for the scammed. The second is committed by obtaining a “life settlement” agreement through false promises to the owner of a life insurance policy.
In difficult financial times, many people turn to lawyers or debt settlement companies to negotiate settlement agreements with their creditors in order to reduce their debt burden. A typical debt settlement fraud scheme involves people claiming to be debt attorneys or representatives of a legitimate debt settlement company. They charge an upfront fee, sometimes as much as $5,000 United States Dollars (USD), and deposit the money into a corporate account. The customer is then asked to continue making regular monthly payments for a specified period of time.
The client, who continues to receive inquiries from creditors, discovers that no agreement has been reached with them. In response to customer complaints or questions, the alleged conciliation firm or lawyer usually sends a letter stating that an agreement could not be reached. It may also indicate that the client’s commission has been spent in the trading process.
A warning sign of this type of scheme is a promise to eliminate the debt or reduce it by an exact amount. Asking for money to deposit into the company account is also a wake-up call. Debt settlement is not a heavily regulated activity. However, a local Better Business Bureau is a good place to find out about a company’s complaint history. Frauds can be reported to the Consumer Fraud Division of the Attorney General’s Office in the state where the victim lives.
A life settlement occurs when a life insurance policy is sold to a life settlement provider. The policyholder is paid more than its surrender value in cash but less than the policyholder’s death value. Many policyholders, especially the elderly, may want a lifetime settlement due to an inability to pay premiums or the death of a spouse or beneficiary. Settlement of life is a lawful and regulated business transaction in most states.
Lifetime settlement fraud mostly occurs with elderly policyholders or people in dire financial straits. It is usually carried out by insurance agents or other individuals. They approach the policyholder with offers to purchase a new life insurance policy, which will be paid for by a third party. These individuals are really arranging to purchase a life settlement in the name of the insured.
A warning sign is that the offer sounds too good to be true. It can include promises that there are no prizes. There may also be assurances that the policyholder is not liable for any deficiencies in the policy. Another red flag is that the offer was not requested by the policyholder and the person who made it is a stranger. Life settlement fraud can be reported to the insurance department of the state where the policyholder lives.
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