What happens if you don’t use insurance money for repairs?

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When your car is damaged in an accident, filing an insurance claim is usually the first step toward getting it fixed. But not everyone uses the payout for repairs. In some cases, policyholders choose to keep the claim money instead.

In general, once your insurer issues a payout, you can decide how to use it — but only if you own your car outright. If your vehicle is financed or leased, the lender or leasing company typically requires the money to be used for approved repairs to protect their investment.

Keeping the payout without fixing the damage can come with tradeoffs. If an insurer later discovers that the original damage wasn’t repaired, future claims related to that issue may be denied. Unrepaired damage can also reduce your car’s resale value and, in some cases, affect safety if the damage interferes with how the vehicle operates.

Can you legally keep insurance money without making repairs?

Whether you can legally keep your car insurance payout without repairing your vehicle depends on a few factors.

• Financing. If you leased your car or financed it with an auto loan, the lienholder of the vehicle may require you to use the insurance payout for the necessary repairs. 
• Policy requirements. Some insurance companies allow direct policyholder payments (unless there is a lienholder), while others may require payments to be made directly to the repair shop. 
• State laws. Typically, states require insurance companies to issue checks to the policyholder and, if applicable, the lienholder, or the body shop may be listed as a payee. 

Generally, if you own your car outright and your state and insurer allow it, you can skip repairs and keep your car insurance claim payout. The insurance company will send you a check, and you can use it for anything you like, including credit card payments or medical expenses. 

What you need to know before skipping repairs and keeping claim money

If your car is still drivable, it can be tempting to pocket the insurance payout and live with the damage. Before you do, it’s worth understanding the financial, legal, and safety tradeoffs that can come with skipping repairs.

• Loan or lease restrictions. If your car is financed or leased, the insurer will list the lienholder on the payout, and the money must be used for repairs. Keeping the funds instead can violate your loan or lease agreement.
• Complications with future claims. Unrepaired damage can create issues down the road. If you’re in another accident, the insurer may reduce your payout or deny coverage for damage tied to the earlier claim.
• Lower resale or trade-in value. Visible damage can significantly hurt your car’s value. Most buyers factor repair costs into their offer—or walk away entirely.
• Hidden safety concerns. Damage that looks cosmetic may hide deeper problems. Skipping repairs means those issues go unchecked, which can compromise safety over time.

Pros and cons of keeping your auto insurance claim money instead of making repairs

Deciding whether to keep or use your insurance payout for repairs isn’t always straightforward. There are clear benefits to holding onto the money, but potential risks could cost you more in the long run. 

Here’s a breakdown of the pros and cons to help you weigh your options.

Pros of pocketing auto insurance claim money

• Immediate financial relief: Keeping the claim money can provide instant access to funds you might need for other pressing financial obligations or emergencies.
• Flexibility: You can decide how to use the payout, whether for future repairs, investments, or personal expenses.
• Cost efficiency: If the damage doesn’t affect the vehicle’s functionality, you might choose to save on repair costs altogether.

Cons of pocketing auto insurance claim money

• Future claim complications: Insurance companies may deny subsequent claims or reduce payouts if they discover that previous damages were not repaired.
• Vehicle safety: Unrepaired damage can lead to hidden issues with critical components like brakes, wheels, or the engine, compromising your car’s safety. Remember, not all damage is initially apparent.
• Decreased resale value: A car with visible or known unrepaired damage can deter potential buyers and significantly reduce the vehicle’s resale value.
• Loan/lease violations: If your car is financed or leased, keeping the claim money instead of making repairs might violate the terms of your agreement, leading to penalties or other complications.

By carefully evaluating these pros and cons, you can make a more informed decision about whether to pocket your auto insurance claim money or use it for necessary repairs.

How does pocketing insurance money affect my vehicle’s value?

When you’re in an accident and file a claim with your car insurance company, it’s reported to several sources. Services like CarFax pull data from insurance companies, police reports, and repair shops to discover recent accidents or vehicle damage. 

Even if you don’t move forward with repairs, the accident and damage will likely show up on your vehicle history report, and the damage can impact your car’s value. As a result, your vehicle may have a diminished value compared to the car’s value if you completed the required repairs. 

Disclosure requirements vary by state. Generally, sellers are required to disclose known issues or damages to prospective buyers or risk legal consequences. 

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Why using your claim check to repair your car is a smart move

Although the idea of using your insurance payout to bolster your emergency fund, pay down high-interest debt, or splurge on a vacation can be appealing, using the payout to repair your vehicle may be the wiser (albeit more boring) choice for the following reasons: 

• It preserves your car’s safety. After an accident, your car’s structural or mechanical systems may be compromised, even if the damage isn’t obvious right away. Getting a professional inspection and completing repairs helps address hidden issues and ensures your vehicle remains safe to drive.
• It keeps your card on the road. While skipping repairs might save you money upfront, it can cost you more in the long run. Unaddressed damage can lead to reliability issues, denied future claims, and potentially force you to replace your car sooner than expected.
• Repairs maintain the car’s value. Unresolved repairs cause the car’s value to go down, making it harder to sell. 

Ultimately, deciding whether to use your auto insurance claim money for repairs or to keep it is a personal choice. Just be sure you know the potential risks before making your final decision.

Kat Tretina

 

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Kat Tretina is an insurance expert and freelance writer specializing in personal finance and insurance. Her work has appeared in top publications like U.S. News, Money.com and The Wall Street Journal’s Buy Side. She helps readers make informed decisions about money, budgeting and car insurance.