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Honesty Pays Insurance fraud is not only a crime-it's costly, too.

By Jacquelyn Lynn

Opinions expressed by Entrepreneur contributors are their own.

It might not seem serious if you fudge your insuranceapplication to get a lower premium or inflate the value of a claimto cover your deductible. But if you're not entirely truthfulwith your insurance company, you're committing fraud.

Claire Wilkinson, vice president of global issues for theInsurance InformationInstitute in New York City, says property and casualtyinsurance fraud cost insurers about $30 billion in 2004. Aside fromblatant fraud, like submitting claims for damage that neveroccurred or staging accidents, common frauds include"padding," or inflating claims, and misrepresenting factson an insurance application. Another common fraud happens whenemployers underreport the number of workers they have ormisclassify employees to save on workers' compensationpremiums. "When companies underpay workers' comp, itdrives up premiums for every other business and shifts the burdenfor worker-related injuries to employers who report honestly,"says Wilkinson.

Insurance companies can withhold payment where fraud issuspected, and they work closely with state and federal agencies toidentify and prosecute fraud. If you are caught committing fraud,you risk fines and a possible prison term. For an entrepreneurialbusiness, says Wilkinson, the impact could be catastrophic.

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