What is clean sheeting?
Clean sheeting is the fraudulent act of buying a life insurance policy without disclosing a pre-existing terminal illness or disease. This type of fraud is often done with the information of the buyer and agent.
Understanding Clean Sheeting
In cases of clean sheeting, the policy is often sold soon after it is purchased in a catastrophic settlement, but the money received is much less than at a legitimate settlement. This is because there is a high chance that the fraud policy will be revoked. This type of fraud provides huge benefits for the person who buys the purchaser as they are able to buy the policy at a huge discount, somewhere around 10% of the face value of the policy.
- Clean sheeting is the fraudulent practice of buying a life insurance policy without disclosing a pre-existing terminal illness or disease.
- Once the person with a pre-existing incurable disease dies, the buyer of the policy can claim the Sum Assured.
- In clean sheeting, the seller of the policy benefits from the one-time payment received for the policy while the buyer benefits from the heavily discounted value of the policy.
- Some states allow insurance companies to include a one- or two-year competitiveness clause that allows them to refuse payments if the insured dies during this time frame.
to tell the truth
Life insurance companies make great efforts to ensure that they are charging adequately for each customer’s risks. Thus, when applying for a life policy, a series of questions must be completed, usually online or by mail, that ask about smoking, blood pressure, hazardous hobbies and family history, to name a few areas of inquiry. Huh.
A follow-up phone call asks the same question, then usually connects dozens of other people, often with “have you been” or “have you ever been” language. It’s easy to forget (or lie) about an old injury or another health problem, but the insurer will remember. Any omissions or discrepancies with medical or other records may result in a rejected claim or refund of premiums paid.
A dishonest agent might suggest that there’s nothing wrong with telling a few white lies in the process. The agent will take his commission and move on. In the meantime, those inaccuracies will remain and if you make a claim in the electable period, the records will crumble with a fine comb.
In insurance, an inconsistency clause is a clause in most life insurance policies that prevents the provider from voiding coverage after a specific time has elapsed due to misstatement by the insured. A specific inconsistency clause specifies that a contract shall not be voidable after two or three years because of misstatement.
Some states allow insurance companies to include a provision stating that a one- or two-year contest period must be completed during the life of the insured. In this scenario, a life insurance company may refuse to pay benefits if a policyholder was so unwell at the time of applying for coverage that they died before the contest period ended. Some states allow the insurance company to cancel the policy if intentional fraud is proven.
example of clean sheeting
In 2001, a California couple were sentenced to 40 months in prison for clean sheeting. Lonnie Harwell and Penny Alexander-Harwell enlisted patients, mainly HIV/AIDS, to purchase insurance policies without disclosing important facts related to their health. The policies had low denominations, between $25,000 and $150,000, and were issued to individuals between the ages of 15-50. Most importantly, they did not require physical examination or blood tests as pre-conditions for release.
Harwells paid a percentage of the premium along with the amount claimed. Patients benefited from getting lump sum payment. After the death of the patient, Harwells claimed the sum insured. They benefited from “stacking” several such policies together.
Harwells had set up a network for referrals of such patients with a referral benefit of $1,000. The California Department of Insurance (CDI) alleged that insurance companies issued policies valued at more than $11.6 million to such individuals.
How widespread is insurance fraud?
Insurance fraud that is not related to Medicare is estimated to cost insurers more than $40 billion dollars per year, according to the National Association of Insurance Commissioners. This ultimately costs the average American family between $400 and $700 a year in premiums, the group said.
What are the possible consequences of participating in clean sheeting or other fraud?
Lonnie Harwell and Penny Alexander-Harwell were sentenced to 40 months in prison in 2001 for their clean sheeting scheme. A California couple recruited sick patients to buy insurance policies without disclosing important facts related to their health. Harwells paid a percentage of the premium along with the amount claimed. Patients benefited from getting lump sum payment. After the death of the patient, Harwells claimed the sum insured.