So you got into an accident and there's a big dent on your car's front fender. You're waiting to receive a check from your insurance company.
You think you can live with the damage. Can you simply spend the money rather than use it to pay for repairs?
Some drivers choose to forgo repairs because they have other financial priorities, or because they are unable to pay the deductible on their collision or comprehensive claim. (See "What if I can't pay my deductible?")
Whether you can simply cash the settlement check depends on many things, such as who holds the title to your car, where you live and which insurance company you use. The check you're so eagerly awaiting may not be written out to you alone.
And taking the money without fixing the car might spell trouble down the road.
If your car is leased or you have a loan
If you lease or have a loan on your car, in the majority of cases your insurance company will write a check to both you and your leaseholder or lien holder. (See "Faster checks, but slower repairs.") What does that mean for you?
That may mean that you will have to visit your bank to get the check co-signed, or you might even have to mail your check to an out-of-state financial institution. All of this extra legwork, of course, can delay the repair of your car.
In any case, you have to fix your car, says Pete Moraga, communications specialist with the Insurance Information Network of California in Los Angeles. "If the check is made out to you and your lender, you have to fix the car because the lender is going to want to make sure that he protects his investment, as the bank is the co-owner of your car and it has an interest that your car gets fixed," Moraga points out. (See "Low, low payments -- on the car, anyway.")
"The lender is not only going to want to protect his investment; he wants the car to be put back in the same condition as before the accident," Moraga says.
Even if the check arrives made out to you alone, it's still meant to fix the car.
"Don't ever forget the lien holder and try to cash the check, because it's fraud and it's dishonest," says Penny Gusner, consumer analyst at CarInsurance.com. "I've known people who have done that and it hasn't turned out well. You have a contract with your lender that you will maintain and repair the car."
You own your car outright
If you own your car and you have collision insurance, your insurance company may make the check out to you in order to settle a claim. However, your insurance company might just include the body shop that makes the repairs on your car as a payee.
"If you own your car outright and you're going through your own insurance company, the insurance payment can go through you, but nowadays, it all depends on your insurance company," says Gusner. "You might have a written agreement with your insurance company that the check must go to the body shop."
Some states, on the other hand, have specific regulations regarding which party checks are made out to after an accident. (See "Car accidents: What you need to know.")
Under Massachusetts' direct payment plan, for example, a check is made out directly to the claimant, who can then choose to have the car repaired at a registered auto repair facility of his or her choice, Gusner says.
What if I choose not to fix the car?
If yours is the only name on the check, you own your car outright, and you choose not to repair your car, you're probably free to use the money as you wish.
But experts advise you to keep your eye on the bigger picture.
"If you keep the money and then file another claim in the future for another accident that damages the same part of your car, your insurance company is going to deduct for the pre-existing damage for the first accident that you didn't repair," Gusner says.
No studies have been done on how many people receive checks and don't repair their cars, says Moraga. "But if you do this, future claims may not be paid."
It's a safety issue as well, he adds.
"It's always a good idea to get your car fixed because you want your car to be in good working order," he says, "and in most cases, a preferred vendor will guarantee the repair."