Do You Have to Use Insurance Money to Fix Your Car?

If you own the car outright and the check is made out only to you, you can keep the money and leave the car unrepaired. The payment is for the damage, not for a repair, and nobody has to approve how you spend it. If the car is financed or leased, the lender or leasing company is usually on the check with you, and nothing moves until it endorses. Your first move: read the payee line on the check or payment notice.

The price of keeping the money comes later. A future claim on the same part pays nothing for the old damage, and if the car is ever totaled, the insurer subtracts that unrepaired damage from the car's value.

How the payment works

Most auto policies set the payout as the cost to repair the damage, and many insurers pay that amount even when you choose not to fix the car. On a claim with your own insurer, the deductible comes off first, so the check is the allowed estimate minus your deductible.

Who is named on the check tells you who controls the money:

• Only you: the money is yours to deposit and spend.
• You and a lender: on a financed car, the insurer makes the check payable to both you and the lienholder in most cases. Both of you endorse it before it can be cashed, and then you and the lender agree on how the money is released. Some lenders keep the money and pay it out as repair work is completed.
• You and a leasing company: if the leasing company is listed as loss payee on your policy, it is on the check and has to endorse.
• You and a body shop: a check made out to you and the shop needs the shop's endorsement too.

A financed car also has to stay insured. A car loan requires insurance covering the vehicle itself, repaired or not. If that coverage lapses, the loan contract usually lets the lender buy force-placed insurance, which protects only the lender, not you.

Read both sides of the check and the payment letter before you deposit anything. Cashing a check is often treated as accepting the insurer's settlement offer, which releases it from paying more on this claim.

What unrepaired damage costs you later

Keeping the money turns this damage into prior damage on the car, and insurers subtract prior damage from later payments.

• A later claim on the same part: if your bumper was already damaged before a new accident, the insurer deducts the cost of that bumper from the new settlement.
• A later total loss: the insurer deducts old, unrepaired collision damage from the car's value before it pays you. Illinois puts no limit on that deduction. New Jersey limits it to the amount by which fixing the damage would raise the car's resale value. Both states require the insurer to itemize the deduction in dollars.
• A leased car at turn-in: if you return the car at lease end, unrepaired damage is billed as excess wear and damage. Car lease disclosures carry the notice that you may be charged for excessive wear based on the leasing company's standards for normal use.

Dated photos of the damage you kept, filed with this estimate, show a later adjuster exactly where the old damage ends and the new damage begins.

What to do today

1. Read the payee line. On the check, payment notice or direct-deposit confirmation, list every name. Only your name means the money is yours. A lender, leasing company or shop means that party has to endorse.
2. Find out whether this payment is final. Look for "final", "full and final" or "release" on the check and in the letter. Before you deposit, call the adjuster and ask whether this check is full or partial, especially if the shop suspects hidden damage behind the panels.
3. Photograph the damage today. Shoot every damaged panel, light and wheel with the date showing, plus a wide shot of each side of the car. Save the photos, the estimate and the claim number in one folder.
4. Financed or leased: call the lender's insurance department. Use the script below and ask for the answer in writing.
5. Fix the safety items first. Ask a repair shop which items on the estimate affect driving: lights, mirrors, glass, tires, suspension, cooling, air bags. Pay for those from the check and hold the cosmetic work. If a lender is on the check, get its release first (step 4). If the shop quotes more than the insurer allowed, use the estimate gap guide to get the difference approved.

Where it splits

If the insurer calls this check a partial payment, find out what the rest depends on. Some insurers pay part now so repairs can start, and pay the rest only after you send proof the repairs were done. If you skip the repairs, the first check is all you get, so make the keep-or-repair decision with that number.

If a lender is on the check, endorse it and mail it to the address the lender gives you, with any form it requires. Ask what it needs before it releases the money: a repair invoice, photos, an inspection, or nothing. Ask too whether it will apply the money to your loan balance instead of repairs.

If the car is leased and the leasing company is on the check, you need its release before you can spend the money, and if you return the car at lease end, unrepaired damage is billed as excess wear and damage. Ask the leasing company in writing whether it will release the check without repairs, and what it would charge for this damage at return. Compare that charge with the check before you choose.

If the repair estimate is close to the car's value, the insurer will probably total it instead. Then the question becomes salvage and payoff: see keeping a totaled car and, with a loan, the total-loss loan and GAP steps.

Your leverage

• The insurer holds the payment until you repair: ask in writing for the policy clause that allows it. Standard loss-settlement wording pays the cost to repair. If the insurer cannot point to a clause, file a complaint with your state insurance department, found in the NAIC directory, and attach the estimate, the payment letter and the insurer's written reason.
• A body shop you never hired is on the check: ask the adjuster to reissue it. In South Dakota, object and the insurer must take the shop off the check; the check then goes to you, plus your lender if a lien is recorded. On a collision or comprehensive claim in New Jersey, you have the right to receive the settlement, and the insurer may not insist on putting the repair shop on the check.
• A later total-loss offer deducts old damage: demand the dollar amount for each deduction and match it against your photos and this estimate, then use the total-loss negotiation steps.
• The lender added force-placed coverage: if your own policy met the loan's insurance requirements during the dates billed, ask the lender to cancel it and reverse those charges, using the force-placed insurance refund steps.

Call a lawyer if the lender threatens default or repossession over the unrepaired damage, or if an insurer accuses you of claiming the old damage as new.

Call script for the lender or leasing company

"I have an insurance check for claim [number], for $[amount], made out to me and [lender]. My account number is [number]. I am [not repairing the car / repairing only these items: list]. Will you endorse the check and release the money to me, or apply it to my balance? If you need a repair invoice, photos or an inspection first, tell me exactly what and where to send it. Please send your answer by email or letter."

Your decision today

You own the car and only your name is on the check: keep the money. Today, photograph the damage, file the photos and the estimate with the title, and book the safety items with a shop. If an insurer later deducts this damage from a claim or a total-loss offer, those photos and the estimate are what you check its dollar figure against.

The car is financed or leased: the lender or leasing company decides. Today, call its insurance department with the script and get its release conditions in writing. Once both endorsements are on the check it can be cashed, and the money is released on the terms you and the lender agreed.