The penalties for insurance fraud vary widely depending on the state where the prosecution occurred, the amount of money fraudulently sought or obtained, and the criminal history of the defendant. SOFT FRAUD occurs when a person exaggerates an existing claim, such as overstating the damages caused by a car accident. HARD FRAUD on the other hand, occurs when a person either causes or fabricates a loss for the deliberate purpose of obtaining insurance payments. Hard fraud is almost considered a felony, punishable by strict penalties including the possibility of incarceration in state prison for a number of years.