Key Highlights
  • Keeping insurance claim money is not fraud if you own the car and the insurer sends the claim check to you instead of sending it to your repair shop.
  • If you have a loan or lease on your car, then you cannot choose to spend the insurance payout on something else and not repair the car.
  • Most lenders would want you to use the money for repairs, but you can talk to your lender about it.

Do I have to fix my car with insurance money

Question: I recently was directly paid for hail damage to my car. If I don’t get the car repaired, can the car insurance company take the money back? Is it fraud to use the money from a hail damage claim for something other than fixing the car? There is still a lien on the car.

Answer: In general, when you make a claim against your own auto insurance policy, you can choose to “cash out” and receive money as compensation (minus your deductible amount) instead of having your insurer pay a body shop to fix your vehicle.

The insurance company has met its obligation by paying the repair costs for the damages that it found. Your car insurance company shouldn’t take the money back or consider it fraud if you don’t use the insurance money to repair the vehicle. What would be fraud to your insurer is if in the future you filed another claim for the same damage.

However, if you don’t own your car outright but instead have a loan or lease on it, then you aren’t totally in control of how your claim payout can be spent. If you try to keep the money from your comprehensive insurance for hail damages, your lien holder is going to take issue that their asset is not being repaired.

Most lenders require you to place them on your auto insurance policy as a loss payee so that the insurer will issue any check for repairs (or the totaling of the car) to both you and your lien holder.

To cash a claim check made out to both of you, normally you’d endorse the check and send it on to the lien holder, who may require you to send documentation that the repairs were made to the vehicle (such as a copy of the repair bill and photographs of the repaired car) before they will sign over the check to you or a repair shop.

If you cashed a check made out to you and the lien holder without their endorsement (or by forging their signature), then this could be considered fraud and get you into a lot trouble.

Can I keep a claims check if I have a loan on my car?

If the check were made out only to you, your finance agreement would still normally require you to notify your lien holder about the damages and insurance payout. Most lenders would mandate you to use the money for the needed repairs; however, you can discuss the issue with your particular lien holder.

If the hail damage isn’t that extensive and your loan is almost paid off, or if you plan on using the claim money to pay off the loan, then your lien holder may not require you to get the repairs made. Don’t be surprised, though, if they demand that you fix the car.

If your lien holder does allow you keep the money and skip the repairs, remember that this now pre-existing damage the insurer will take into account if your car sustains damage in the future. Your insurer will deduct for this previous damage if the car is damaged in the same area or if the car is totaled out.

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Penny Gusner
Consumer Analyst/Insurance Expert

Penny has been working in the car insurance business for more than 10 years and has become an expert on procedures, rates, policies and claims. She has seen it all, and working with from its inception, she researches the routine and the bizarre with equal enthusiasm. She has three very active children and a husband with a zeal for quirky cars.