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The Difference Between Soft and Hard Insurance Fraud

  • June 12, 2013
  • by Tatyana Levin

Editor's note: This article was written by an industry professional and guest contributor. The views and opinions in this article are of the author and do not reflect the views of PInow. If you are interested in becoming a guest contributor please email [email protected].

Insurance Fraud Statistics

  • The total cost of insurance fraud is $40 billion per year
  • Insurance fraud costs the average U.S. family $400-$700 per year in increased premiums.
  • 4% of the money the insurance industry makes is lost to insurance fraud.

Insurance Fraud

It’s easy to see huge insurance corporations as entities that cannot be hurt. What're a few thousand dollars to a company that has billions of dollars in assets?

That’s how so much insurance fraud begins. It might not be the initial thought when coming up with a plan, but it’s certainly the rationalization behind it. The words “victimless crime” get thrown around, but it’s actually far from true.

Insurance fraud is stealing. Simply put, insurance fraud is lying for the purpose of getting more money from an insurance company, whether it is auto insurance, life insurance, or any other kind of insurance.

On a deeper level, insurance fraud is tricking an insurance company into thinking that they owe you more than they really do either by exploiting a situation that has risen organically or by creating situations that you can milk for the insurance money.

There are two different types of insurance fraud: soft insurance fraud and hard insurance fraud.

Soft Insurance Fraud:
Opportunistic of legitimate claim

  • Claiming your injuries are more severe than they are
  • Claiming stolen property is worth more than it is
  • Exaggerating claims that would otherwise be legitimate

Soft Insurance Fraud

Soft fraud is usually unplanned and arises when the opportunity presents itself. It is the significantly more prevalent form of fraud. An example of this type of fraud would be getting into a car accident and claiming your injuries are worse than they really are, getting you a bigger settlement than you would get if you were telling the truth about your injuries.

Another example of soft fraud would be claiming you had very expensive art that was destroyed when your home was burglarized. In reality, your home was burglarized but your art collection really consisted of prints. This would be significantly more difficult to do because most insurance companies ask for proof of big-ticket items.

Hard Insurance Fraud:
Premeditated, planned, deliberate

  • Slamming on your breaks with the intention of causing a car accident
  • Developing a scheme to create the need for an insurance claim (i.e. arson)
  • Faking a death to collect life insurance

Hard Insurance Fraud

Hard fraud takes planning, scheming, and maybe even someone on the inside to help you get money from an insurance company. An example of hard fraud would be getting into an accident on purpose so that you can claim the insurance money. This example is fairly prevalent lately; someone hits the brakes so that the person behind them can’t stop quickly enough.

Another really severe form of hard fraud would be faking your own death for the life insurance death benefit. You would definitely need somebody’s help to pull that one off.

Insurance Fraud Statistics and Repercussions

According to the FBI insurance fraud division website, “The total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means Insurance Fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums.”

The FBI states that insurance is a $1 trillion industry annually. This means that 4% of the money that the insurance industry makes is lost to insurance fraud.


You may think that insurance companies will just lose the money and that will be it, but they need to combat this loss by hiring and expanding a fraud department which is expensive. The only way to make up the money from all of this money loss is to raise prices.

Ultimately, fraud hurts the consumer much more than it hurts the insurance companies. They can increase their prices all they want. People will still need insurance even if it’s more expensive; they will just have to pay the higher price because of fraud.

More information: Insurance Fraud

About the Author

Tatyana Levin is a personal finance enthusiast and blogger, writing for the website She is dedicated to helping people understand all types of financial issues and misconceptions.

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