Accepting Cash Payment Instead of Filing an Auto Insurance Claim

This is a tempting offer. Another driver failed to stop at a stop sign – you had no traffic control, entered the intersection, and were struck by the other vehicle, who did not notice a stop sign and failed to stop.  He gets out, and looks at your damages. Your damages don’t seem to be extreme; you might consider them minimal to moderate.

You decide the cash amount he’s offered is probably sufficient and you accept it.  The other driver writes a check, on the spot, and, to insure your confidence, he provides you with contact information.

Nobody involves their insurance carrier and has their rates increased.  You both move on.  We’ll assume you secured his name and phone number.  You have a few options.

You may be driving an older vehicle, and decide to pocket the money; you’ve planned to purchase a new car soon, anyway.  It’s obvious that the damage will reduce your trade in or sale value.  Depending on your personal financial situation, this may, nevertheless, be a reasonable and hassle-free response.

However, the car may be newer.  You decide you need someone to at least look at the vehicle. You do not call the police, but tell the other party you’d like to get some estimates before accepting any particular sum.  You exchange contact information.  This poses a number of potential problems.

You may discover the contact information provided is inaccurate. He’s not known at the phone number provided, and a cross search by address reveals that he also doesn’t live at the given address. 

Or, you may be able to reach the other party; you inform him of the amount of the two or three estimates you’ve secured.  He decides he wants you to first take it to a body shop that he chooses.  You comply with that request, but when you receive a significantly lower estimate, the driver tells you it is the most he will pay.  You call your own carrier and, if you carry collision coverage, they will likely pay the damages. However, they will also send you a letter pointing out that, per your policy language, you are required to report all accidents promptly to your carrier. It is also possible that some non-standard policies may even decline to renew you at the next policy period for this failure to report.

Your carrier must now investigate a claim where memories have begun to fade, or where the other driver now tells another version of what happened. Your carrier will likely still attempt to recover from the driver’s insurance carrier. However, they may also discover that the other driver has no insurance.  Your carrier will try to recover from the other party, and they will, if needed, use outside debt collectors to attempt recovery. However, you may very likely, if you have a standard policy, at least see an increase in your insurance rate for failure to promptly report the accident and damages.  This language exists in all policies with collision coverage.

Always secure contact information for the other party and their insurance company, if available. Also, while police reports do not determine liability, they are a very rich source of information for the adjusters. Overall, it is never a good idea to negotiate a cash payment with another driver.