If you own your vehicle outright, you can legally keep insurance money without making repairs. However, if you have a loan or lease, you likely cannot. Lenders often require repairs to maintain the value of their investment, and failing to make them could put you in violation of your financing agreement.
Not every driver rushes to the body shop after filing a claim. Whether you’re weighing your options or just not ready to commit to repairs, it helps to understand what happens if you don’t use insurance money for repairs and whether doing so could create problems down the road.
Consulting an attorney can provide clarity and guidance if you face disputes over insurance money or repair obligations.
Call our experienced car accident lawyers today at (800) 718-4658 or contact us for a FREE, no-obligation insurance coverage review for your accident.
Table of Contents
- Is It Illegal to Use Insurance Money for Something Other Than Repairs?
- When Do You Need to Use Insurance Payouts for Repairs?
- What Issues Are There When Lenders Are Involved?
- When Are You Allowed to Keep Your Insurance Payout?
- Can I Cash an Insurance Check Made Out to Me and the Body Shop?
- Can I Keep Extra Money from an Insurance Claim?
- Can I Fix My Own Car with Insurance Money?
- What Are The Risks of Keeping Auto Insurance Money?
- What if I Can’t Afford Repairs After Receiving an Insurance Payout?
- Can Insurance Companies Ask for Money Back?
- What If My Car Is Totaled?
- Injured In a Crash? Contact a Car Accident Attorney Today
Is It Illegal to Use Insurance Money for Something Other Than Repairs?
California law does not automatically require vehicle owners to spend insurance payouts on repairs.
However, misrepresenting your repair intentions to obtain payment can constitute insurance fraud.
Fraud occurs when a driver knowingly provides false information, not when they simply choose to delay or forgo repairs after receiving a legitimate payout.
Drivers who later seek additional compensation for damage already covered by a prior payout may face legal complications.
When Do You Need to Use Insurance Payouts for Repairs?
Situations where you need to use insurance payouts for repairs include:
- The vehicle is financed or leased, so lenders are listed on the check, often requiring proof of repairs for funds to be released in order to protect their collateral interest
- The driver accepted payment based upon an agreement to complete repair work, and using the funds for another purpose is a breach of contract
Lenders may demand full repayment or take other protective action when repairs are not completed in some circumstances.
What Issues Are There When Lenders Are Involved?
Lenders are commonly named as “loss payees” on insurance checks. This means they need to endorse the checks and will probably require proof of repairs.
Lenders may require proof of repairs before releasing funds if they are listed as co-payees.
Lenders may insist that insurance payouts be used for repairs to ensure their collateral remains in good condition.
If a lender is listed as a co-payee on an insurance check, the funds may be held in escrow until repairs are completed.
When Are You Allowed to Keep Your Insurance Payout?
You can legally keep insurance money without making repairs if you own the property (car) outright.
If the insurance check is made out solely to you, you are not required to use the money for repairs. Some owners delay repairs, do only safety-critical work, or sell the car as-is.
However, insurance companies may invoke a provision that allows them to pay repair costs directly to contractors, limiting your control over the funds. Insurance companies may pay repair shops directly to ensure that the funds are used solely for repairs.
Can I Cash an Insurance Check Made Out to Me and the Body Shop?
Yes, you may cash an insurance check that’s made out to you and a body shop. However, both parties will need to endorse (sign) it.
The body shop will typically not endorse the check until repairs are finished.
Can I Keep Extra Money from an Insurance Claim?
If you find a contractor who repairs damage for less than the insurance company’s estimate, the remaining amount will usually be yours.
If you perform repairs yourself and the materials’ cost is less than the insurance payout, you can usually keep the difference.
You may be allowed to keep excess funds from an insurance claim if you own the car outright, did not commit fraud, the insurer does not expect repayment, the repair costs are lower than the insurance company’s estimate, and you fully repaired the damage.
However, if you have a lien or mortgage on your car, the lender could be a co-payee and will probably need proof of repairs, possibly taking any excess funds.
Check your policy to make sure no clauses are present which require unused funds to be returned.
If an insurance company mistakenly sent you a check for more than the agreed-upon amount, contact them, since they might legally require the money back.
If your claim is paid by another party’s insurance company, you could have flexibility in how you use the insurance funds.
Can I Fix My Own Car with Insurance Money?
Yes, you can typically fix your own car with an insurance payout should you outright own the vehicle. Your insurer will pay to cover the damage, and you can keep leftover funds when you perform the repairs yourself.
However, if your car is leased or financed, the check will usually be made out to you as well as the repair shop, or directly to the repair shop.
Key Considerations and Risks
Since initial insurance estimates are commonly low, if you fix your car yourself, you may miss hidden damage that would be found by a shop. This would lead to you paying out-of-pocket for extra repairs.
In addition, if you start repairing your car yourself and find additional damage, you could need to negotiate a supplement, which will involve sending your insurer more photos and details. This is more complicated without a repair shop involved.
It is not recommended that you fix safety-critical (like airbags), frame or structural damage yourself.
Make sure you have adequate funds to cover all damages. If you fail to repair the damage yourself, future claims regarding the same area could be denied.
Insurance companies usually don’t care who fixes cars as long as they receive proof of repair when needed. However, you should inform your adjuster before you proceed with fixing your own car.
Your vehicle’s resale value will decrease if you do a poor job of fixing the damage yourself.
It’s important to keep in mind that insurance companies usually pay based on used or Like Kind and Quality part prices rather than new dealer parts.
What Are The Risks of Keeping Auto Insurance Money?
If you receive an insurance payout for repairs, you should check with your insurance company and lender before deciding how to use the funds.
Failing to use insurance money for repairs can affect future claims and may lead to higher premiums.
Not using insurance claim money for repairs can lead to denied future claims for the same damage.
Failing to use insurance money for repairs can lead to penalties or even default on or violate your loan agreement if your vehicle is financed.
Insurance companies might refuse to renew your insurance policy when they discover that you failed to fix your damaged property.
The Risks of Unrepaired Damage
If unrepaired damage gets worse, your insurer may refuse to pay for future repairs, arguing the issue was already addressed. They may also deduct prior damage from future payouts if they overlap with new damage.
Unrepaired damage significantly lowers the value of a vehicle.
Driving an unrepaired car can pose serious safety hazards. This can potentially cause legal issues, increase injury risks in future accidents, and violate inspection or state safety laws.
Insurance Fraud
Misrepresenting repair intentions or inflating costs for extra cash can be considered insurance fraud, leading to serious legal repercussions.
It is illegal to lie about damage, inflate repair costs, fake damages or use checks meant for repairs when policies specifically restrict funds.
While it is not illegal in some circumstances to pocket insurance money, you still need to be truthful during the claims process.
What if I Can’t Afford Repairs After Receiving an Insurance Payout?
If you can’t afford repairs after receiving an insurance payout, you could be able to keep the payout if you own your vehicle outright.
However, this can complicate future claims. Failure to repair damages can lead to insurers denying future claims for the same part of your vehicle.
If you can’t afford repairs after receiving an insurance payout, you may have options to explore with your insurer.
You can get additional, independent estimates if your initial estimate is too much for you to afford.
You can negotiate repairs by asking repair shops for reduced rates or payment plans.
If repairs end up costing more than expected, you should ask your insurer for a supplemental payment, particularly if the repair process found new damage.
Be careful about signing any documents which say “final” settlement. This could prevent you from seeking additional funds later.
Ideally, you should call a lawyer before you call your insurance company to ensure you get a fair offer.
If your insurance settlement is inadequate or you are facing pressure from lenders, an attorney can help.
Can Insurance Companies Ask for Money Back?
Insurance companies may reclaim unused funds if repairs are not made, depending on the terms of your insurance policy.
Failure to repair may violate loan or lease agreements, allowing the lender to demand repayment.
Other reasons insurance companies ask for money back include:
- The insurer paid more than the repairs’ actual costs
- A claim was paid twice mistakenly
- Fraud was discovered or initial info provided was inaccurate
What If My Car Is Totaled?
If your vehicle is deemed a total loss, the insurance company will take ownership and you will receive the cash value, which you may use freely.
Total loss payouts cover the pre-accident value of the car, so you’re not expected to put them towards repairs.
If you had prior unrepaired damage, your insurer may deduct it from your payout to avoid paying for it twice.
You can usually keep vehicles by accepting smaller settlements and applying for salvage titles.
To get the most money for a totaled car, you’ll want to:
- Do independent research
- Get a third-party appraisal
- Provide supporting documentation
- Use the right negotiation strategies
- Hire a lawyer
Injured In a Crash? Contact a Car Accident Attorney Today
Call us today for a FREE consultation at (800) 718-4658 or contact us if you or a loved one was injured or killed in a car accident.
We can help you recover financial compensation for medical bills, lost wages, pain, suffering, property damage, wrongful death and more, and won’t charge you any fee until we win your case.
Why Car Accident Victims Trust Nadrich Accident Injury Lawyers
- We have been successfully handling car accident cases since 1990.
- Our car accident team provides responsive service, frequent case updates, 24/7 availability and reliable communication.
- We provide free consultations and contingency fee representation, which means our only fee is a percentage of any money recovered, we don’t charge any fee until we win the case, and we don’t charge any out-of-pocket or upfront fees.
- While some law firms are eager to accept quick, low ball settlements for a fast payout, our legal team isn’t afraid to go to trial, so we’ll never settle for less than the true value of your case.
Call us today at (800) 718-4658 for a FREE consultation.
