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Do you Have to Repair your Car with Insurance Money?

When you successfully file a claim, the auto insurance company will send out a check to make you whole. But do you always have to repair your car with the insurance money? Who gets the car insurance check? And what are your rights in determining how that insurance payout is spent? Here we explain the insurance claims process once the car insurance check is in the mail.

Whose Name is on the Car Insurance Check?

Drivers who own their cars free of any loan obligation typically receive a check in their own name, says Loretta Worters, a spokesperson for the Insurance Information Institute.  

"If you own your vehicle outright, then your insurer should make out a check in your name," Worters says. "The insurance company will likely ask you for proof of ownership before they issue the check."

Drivers who have a car loan face a more complicated situation.

"If you don't own the car free and clear, the check will likely be made out in both your name and the (name of the) lienholder or the body shop," Worters says.

Sometimes, the body shop will be the only name on the check, she adds. Insurers include the repair shop's name on the check to reduce fraud and guarantee that you repair the car, Worters says.

There are circumstances – particularly when another driver is at fault in an accident – in which someone else's insurance company will issue the check. Drivers in this situation are likely to receive a check in their name only, even if they have a car loan.

Melanie Musson, insurance expert and writer with freeadvice.com, says the check recipient varies by insurer and state. 

“Usually, the car insurance company will make the check out to the body shop to simplify the process. This is not always the case, though. Sometimes the insurance company makes the check out to the vehicle owner so the owner can pay the body shop,” Musson says. 

Musson adds that an insurer will contact the driver directly to discuss a settlement if the car is a total loss. “From there, you can negotiate the settlement offer if you believe their offer is not fair. In the end, the check will be made out to the vehicle owner,” Musson says. 

Who Receives the Insurance Payout Check?

Michael P. McCready, personal injury lawyer at McCready Law in Chicago, says who receives the insurance claim check is crucial. 

“When our office represents a client, the very first thing we do is send a letter of representation to the insurance company. This does several things, but most importantly, it requires them to include our firm name on any check. Without our name on the check, the client would be left to their own honesty to pay the lawyer. What happens in practice, when a case is settled, the settlement check will come to the lawyer’s office and made payable to the law firm, the client and perhaps any medical providers.

"The lawyer will deposit the check in his or her attorney-client trust account to clear. The attorney will then disburse according to an agreed-upon settlement sheet, writing checks to the client, medical providers as well as a check to the firm for attorney fees and costs. Disbursement of client funds is highly regulated by State Bar Associations. Any deviation, even if inadvertent, can result in suspension of a lawyer’s law license. Proper accounting principles, good accounting software and a knowledgeable bookkeeper are worth their weight in gold,” McCready says. 

If the check is made out in your name, it will be mailed directly to you.

If your own insurer is paying the claim and you have a deductible, that amount typically will be subtracted from the amount of the check, says Lori Conarton, spokesperson for the Insurance Institute of Michigan.

Once you receive the check, you have a couple of options. "If the check is made out to the policyholder, he or she can cash it or sign it over to the body shop," Conarton says.

If the lienholder also is named on the check, the lender will have to sign off on it before you can use the money for repairs. That may require you to mail the check to the lienholder for approval, or to make a trip to the bank.

In some cases, your insurer will simply pay the body shop directly for repairs. In these instances, you might not see a check at all. Some insurers prefer this method of handling claims, especially if you agree to have the work done at a body shop that has a special arrangement with the insurer.

Musson says drivers can take their damaged vehicle anywhere for repairs. However, the process will likely be smoother if you take your vehicle to your car insurance company’s preferred body shops. 

“In the best-case scenario, the body shop you would have chosen for yourself is also a preferred shop of the insurance company. The body shop can communicate directly with you and the insurance company and your insurer can pay the shop directly. All you’ll need to do in this situation is to sign some paperwork and pick up your vehicle when it’s fixed,” Musson says. 

However, you don't have to accept your insurer's choice of body shop if you would prefer someone else to do the work.

"(If) the policyholder would like another shop to perform the work, the insured should contact the insurance company adjuster to have the check reissued in the name of the new shop," Conarton says.

When Can you Keep the Money Instead of Repairing the Car?

Although the insurance company expects you to use funds from the check to repair your car, you are not always obligated to do so, Worters says. 

"If you decide not to use the check to fix your car, that is your legal right when you fully own your vehicle," she says.

In some cases, it can make sense to pocket the check instead of spending the money on repairs. Such situations might include:

  • Your car is old. If the damage is minor and mostly cosmetic, you might skip fixing the car.
  • Your claim is associated with an accessory. For example, if your car stereo is stolen and you can live without replacing it, the claim check might be used for other expenses.
  • You can repair the vehicle yourself. If the damage is cosmetic – or even if it's mechanical and you have the expertise to fix the problem – doing the repairs on your own might allow you to pocket the insurance money.

However, there are risks to not using the check to repair your car, Worters says.

For example, if you get into another car accident and the same area of your car is damaged, the insurance company might not issue a check if it discovers you never applied the first check toward repairs to that area of your car, Worters says. 

Also, be aware that if you pocket the cash instead of repairing your car, and then try to submit a second claim for the damages later on, "that is deemed as fraud, because you are in effect looking for funds twice," Worters says.

When Must you Repair the Car with the Insurance Check?

If you used a car loan to purchase your car and have not paid off the loan, you are obligated to repair the car to its original condition. Failing to do so is illegal.

"This would be fraud, if you pocketed the money when the car isn't owned by you," Worters says. "It is the dealership's investment."

Your loan or lease agreement probably stipulates that you must keep the car in good shape and working condition. So, it is a big mistake to pocket insurance money if you have a loan or a lease.

Your Car Insurance Laws Might Differ

Car insurance is regulated at the state level. That means laws can differ by state . So, some of the guidelines mentioned above might not apply in your state.

For example, Massachusetts has a "direct payment" regulation stipulating that checks must be made out directly to the insured party. This allows policyholders to more easily spend the money at the body shop of their choice.

Policyholders in the Bay State still have the option of requesting checks be made out directly to a specific body shop, however. And the lienholder's name will be included on the check if you have a car loan.

If you have questions about the claims process in your state, Conarton recommends consulting with your insurance agent.

You can also find out more information by contacting your state's insurance department.