Guide to spending car insurance claims checks

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 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 claims process once the car insurance check is in the mail.

Drivers who own their cars outright typically receive a check in their name, says Loretta Worters, vice president of media relations 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.

Michael P. McCready, a 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, is when a case is settled, the settlement check will come to the lawyer’s office and be 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 and medical providers and a check to the firm for attorney fees and costs. State Bar Associations highly regulate the disbursement of client funds. Any deviation, even if inadvertent, can result in the 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 in your name, it will be mailed to you.

If your insurer is paying the claim and you have a deductible, that amount typically will be subtracted from the check amount, 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 is also named on the check, the lender must 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 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.

Drivers can take their damaged vehicles anywhere for repairs. However, the process will likely be smoother if you take your vehicle to your car insurance company’s preferred body shop.  But you don’t have to accept your insurer’s choice of body shop if you 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.

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. You might skip fixing the car if the damage is minor and mostly cosmetic.
• 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.

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.