Auto Insurance Claim Checks: Repair the Car or Keep the Cash?

I have a claim for damages to my car. Does that mean I have to get the car repaired?

Ok, your car has damages for which you’ve made a claim with your insurance company. But you are thinking you could use the claim settlement money for other purposes more important than the car repairs. Just because you have a claim for the repairs, does that mean you actually have to have the car fixed?

The short answer to this question is a qualified no. Insurance companies are obligated to pay the reasonable cost to restore the vehicle to its pre-loss condition. They have no reason to care if the vehicle actually gets repaired. Most insurers would actually prefer to simply “cash-out” their customers. This is often a much more efficient process for them, as they then don’t have to spend time being involved in the actual repair process.

There are some important things to consider though, prior to making this decision. Lets review some of them here:

Do you have a loan on the vehicle and is your lender going to be included in the settlement? Most auto loans require the borrower to insure the vehicle in order to protect the lender’s interest in it in the event the vehicle is repossessed. Because of this, your insurance company will be required to include the lender in the payment for repairs. In order for you to cash the settlement check, your lender will have to sign off on it. Prior to doing this, they will want to verify that the vehicle (the collateral on the loan) has been repaired.

The main consideration here is what is the bank’s interest in the vehicle. If your loan balance is close to, or less than the settlement check, you may have the option of simply using it to pay off the loan. This way, you’ll erase your debt early, certainly an attractive way to go. The key here is to discuss the situation with your lender to determine what their flexibility is, before proceeding with the repairs.

What is the nature of the damage to your vehicle? There are some repairs that you should never avoid completing, especially damages that affect the safe or legal operation of your vehicle. Damaged suspension components, wheels or tires, lights, safety equipment such as airbags and seat belts, or impacts to mechanical or cooling system components should always be repaired if you intend to operate the vehicle.

On the other hand, the damages may be limited to cosmetic dings, dents or scratches. Perhaps your vehicle already has prior damages, and the additional damages do not detract much from the overall condition. Additionally, these types of damages can be very expensive to repair. It just may not make much economic sense to use the money for repairs, especially if you have other pressing needs.

It is important to avoid making a short-term decision. It can be tempting to take what might be a substantial insurance payment and use it for other pressing needs. Your vehicle, though, is an important asset and in the long run, the smartest move is to make sure that it is maintained in top condition.

What is the full extant of all of the damages to your vehicle? Many times, it may be difficult to know this without removing some parts for a full inspection. For example, many accidents involve impacts to the front or rear bumper. There are components to the bumpers that may or may not be damaged, but without removing the outer bumper cover, it is impossible to know. Fully understanding the extant of hidden damages is something to consider, in deciding how you want to proceed.

If you do have a claim for car repairs and you are thinking of not actually having the vehicle repaired, here are some steps to follow, to ensure you are compensated completely and fairly for the damages:

1. Have the initial inspection completed at a trusted repair shop. It is important not to rely solely on the insurers estimate only. With another estimate, you will have more information to understand negotiable areas to make sure you are being paid fairly for all of the repair costs. All body shops provide estimates free of charge. Discuss the damages with the repair shop to get an understanding of the repairs and the estimate they write. Make sure you understand the potential for hidden damages, judgment items, rates being charged and any additional costs that might arise.

2. Present this estimate to the insurer. They may offer to pay for this estimated amount, request additional estimates or often they would want to complete their own estimate. If this happens, make sure to discuss any differences between their estimate and the one you’ve obtained. If there are disparities, request that the insurer contact the body shop to discuss them and come to an agreement. Many items on an appraisal are negotiable such as the labor rates and repair times. You should know that your body shop agrees that the final settlement amount you accept is something that they would take, to repair the car.

3.  If there is the potential for hidden damages to your vehicle, consider paying the body shop to remove a few items to verify what these damages are. Make sure you understand the charges for this prior to incurring the costs. The insurance company does not owe to put the items back on the vehicle, should you be charged for this.

4. You can also consider requesting compensation for the loss of use of your vehicle. Many insurers will offer this, without knowing if you are getting the vehicle repaired. Although there is an argument that this is not owed, it certainly does not hurt to ask.

Just because you are receiving payment for repairs to your vehicle, does not mean you are required to complete all of the repairs. By fully considering the extant of damages, and your current economic situation, you can then take careful steps to ensure you are being paid fairly for your damages, as well as investing the settlement money in a way that makes most sense for you.