Lying to an insurance company for the sake of financial profit is considered insurance fraud and is prosecuted as a misdemeanor or a felony. Examples may include making exaggerated claims about vehicle damages or staging an accident for compensation.

The purpose of

car insurance

, or any insurance for that matter, is to protect individuals from losing large sums of money when a worst-case scenario occurs. But while this compensation system brings great relief to those recovering from a collision or vehicular theft, there are also those who falsify claims as a way of acquiring “free” money.

What exactly counts as insurance fraud, though—and what sort of penalties exist for those who commit it? Here to walk you through “Insurance Fraud 101” is car insurance

super app

and expert resource,

Jerry

. From common fraud scenarios to how premiums are affected, let’s take a look at what you should know.

What is insurance fraud?

Insurance fraud, in any state, is when an individual knowingly lies to an insurance company to make money through a compensated claim or pay less than they should on a premium.

Knowledge of the fabrication is important—mistakenly telling your insurer you have 95,000 miles on your car when you actually have 100,000 miles is not fraud. However, if you don’t inform your insurer the second you realize this mistake and continue benefiting from

lower car insurance premiums

, then you have committed fraud.

Typically, insurance fraud involving direct compensation—as in a fulfilled claim—falls under one of two categories:

Soft insurance fraud—there is a legitimate claim, but it’s been exaggerated in some way

Hard insurance fraud—there is no legitimate claim; the loss was organized or is a complete fabrication

Regardless of the gravity, any type of insurance fraud is illegal in every state. Therefore, if a fraud has been committed, it will be prosecuted as either a misdemeanor or a felony depending on the crime and the state.

MORE: Car insurance scams: How to avoid insurance fraud

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Common types of insurance fraud

Here are some of the most common frauds that occur in

car insurance

Staging an accident

Often the most dangerous type of insurance fraud, staging an accident involves purposely organizing a collision in order to file a claim. The intention is to make the other vehicle appear to be at-fault so that the fraudulent party can collect damages from the unsuspecting driver’s insurance company.

Here are a few examples of what a staged accident can look like:

The T-Bone—a driver strikes another driver as they’re passing through an intersection, then an accomplice acts as a phony witness and claims the innocent driver ran a red light

The swoop and squat—one car cuts another off and abruptly brakes; an accomplice prevents the innocent driver from swerving into the other lane to avoid a rear-end collision

The wave—a driver waves for an unsuspecting driver to merge ahead of them, then hits the driver and denies ever signaling

Another method of staging an accident occurs when a driver counterfeits a title and registration for an expensive car, then reports the non-existent car stolen to receive its market value in compensation.

Padding a claim

Padding or exaggerating a claim is exactly what it sounds like: a driver reports more damage to an insurance company than actually occurred in order to receive greater compensation.

Generally, this boils down to providing false statements or evidence to an insurer, like fabricated receipts or embellished damage reports.

Misrepresenting vehicle usage

Claiming that your vehicle is garaged hundreds of miles away when it’s actually your daily commuter is another form of insurance fraud. In fact, intentionally misrepresenting any information about your vehicle, like its mileage, usage, or location, for the purpose of getting a lower premium counts as fraud and can be punished as such.

Lying about the cause of damage

If you accidentally knock your side mirror off while backing out of the garage, but file a comprehensive claim that you were a victim of vandalism—you’ve just committed insurance fraud. This type of fraud involves falsifying information about your cause of damage so that it can be covered by your car insurance coverage.

Buying coverage for existing damage

Let’s say your vehicle was a victim of vandalism, but you didn’t have the comprehensive insurance to cover it at the time of the incident. Purchasing

comprehensive coverage

after the fact, then claiming the damage occurred during the policy’s term is another no-go. Unfortunately, you can’t add coverage to pay for existing damages—doing so is insurance fraud.

MORE:

The penalties for using fake proof of insurance

Penalties for insurance fraud

Depending on the type of fraud and the state where it was committed, specific punishments for insurance fraud can vary. But generally, they include the following:

A misdemeanor or felony charge

Jail time—ranging from a few months to several years

Significant fines—sometimes in the tens of thousands

Total restitution of claims received

As cases of insurance fraud have increased, insurance companies have armed themselves with special fraud investigators and specialized data analytics to track down fraudulent claims. Therefore, while it may seem tempting to fib a little on that collision claim, doing so will get you charged with fraud.

How insurance fraud affects premiums

While some incidents of insurance fraud—like reporting a non-existent vehicle stolen—may appear to be victimless crimes, they actually create negative consequences for almost every driver out there.

Because insurers lose significant sums of money when insurance fraud occurs, premiums go up universally. Therefore, if you pay car insurance premiums, you’re already a victim of insurance fraud.

How to save money on car insurance (legally)

Realizing you’re paying more for your car insurance because other drivers are committing fraud is a bit of a downer. But, fortunately, you don’t have to commit fraud yourself to lower your rates—just download

Jerry

The app is free to use, and instantly narrows down the best quotes available for your coverage needs from over 55 top insurance companies. Once you see a plan you like, just select it through the

trustworthy super app

and Jerry’s expert brokers will help handle all the calls and paperwork.

The average user ends up saving more than $800 a year on car insurance. What better way to stick it to those insurance fraudsters than with legal savings like this?

“Using
Jerry
is a super straightforward process, and at each step, you can see exactly what coverage you’re paying for. Thanks to Jerry, I’m paying $900 less each year while keeping full coverage for my new car!” —Martin H.

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