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The difference between hard and soft insurance fraud

You've always thought of the insurance company as a rival. You hold an "us and them" mentality, where you feel like the company is working against you and you must fight back at every turn.

It can certainly feel this way when you file a claim. The insurance company suddenly starts grouping assets into categories, for example, and those categories have monetary caps. You may feel like they're just trying to get out of paying out your legitimate claim.

Sometimes an adjuster will tell you that the assets you are claiming as a loss aren't worth nearly as much as you think they're worth. The company claims they're covering 100 percent of your claim, but you think that what they are offering is only 50-60 percent of what you really are owed for your claim.

As such, you might develop a sort of combative attitude toward the insurance adjuster. You start feeling like it's "fair" to do what you can to increase your claims as much as possible. Maybe it's not technically truthful, but you still feel like it's fair because you're really just getting back what is already owed to you.

This mentality may feel justified, but it can quickly land you in court facing insurance fraud accusations. When this happens, it's important to know if you're being accused of hard or soft fraud.

Arson is hard fraud

Both types of fraud are intentional, as fraud requires intent, indicating it's more than a simple mistake. You're intentionally trying to get more money than you deserve through lies, omission or deception.

Hard fraud is when you fake the claim just to get the payments. You may cause the loss yourself or fabricate it to get paid without the actual loss ever occurring.

For instance, let's posit that you own the building that houses your business. It's worth $1 million if you sell it, but you have an insurance policy for $1.5 million in the event of a loss. One example of hard fraud would be if you set it afire in order to claim the extra $500,000.

So what constitutes soft fraud?

Soft fraud is when you simply overstate or exaggerate a legitimate claim. This is quite common.

For instance, your business gets burglarized and two dozen computers are stolen. You know it's two dozen, but you report it to your insurance company as 50 computers. You assume the insurance company will never know and will pay you more than twice as much to replace your lost stock. If they ever do question your accounting, you simply plan to say you must have counted incorrectly.

Many people feel like it's necessary to commit soft fraud because of the aforementioned "us and them" mentality. They assume the insurance company is going to try to cheat them out of some of the money they rightfully deserve, so they decide to overstate all of the claims to even things out.

Why does this distinction matter?

Why does it matter which type of fraud you're accused of? Generally, soft fraud is just a misdemeanor. You could get a short jail term, probation, fines and community service. Hard fraud, though, is generally a felony and could net you far longer prison terms -- perhaps 20 years -- and much higher fines.

Don't let these charges effectively end your career. Devise a strong defense with the help of your attorney and fight back to keep your record clean.

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