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Car insurance claims: Who gets the claim-payment check?

"Show me the money" is what you might say when an insurer pays to repair your car after an accident. After all, you've paid for your car insurance coverage and the insurer owes you the cash. However, the company may write you a check and tell you to "share the money." Who receives the claim-payment check often depends on who caused the accident.

First-party claim payments

If you cause an accident and have collision insurance, your insurer will pick up the repair bill after you've paid your deductible, up to your policy limits. This is known as a first-party claim situation. In first-party claims, car insurance companies have the right to pay whomever they deem necessary to settle your loss, subject to state insurance regulations. For instance, if you own your car, your insurer might issue a check made out to you and the body shop you've chosen to repair your car. However, some states, such as Massachusetts, have instituted a "direct payment plan" under which the claim is paid directly to you and you can then use those funds to pay for work done at the repair shop of your choice.

Practices vary by insurance company and state. Some insurers will make the check out to the repair shop and you. That's intended to cut down on fraud and to guarantee the repair of your car.

In first-party claim situations, you can't object to the repair shop being named on the insurance check if you've agreed to those terms within your car insurance policy.

Also, you might never see a check from the insurance company if you choose to have your car fixed at one of the insurer's recommended or preferred repair shops. Insurers have special relationships with these repair facilities, which may allow for direct payment from the insurer to the repair shop.

Those darn car leases

Car leases and loans can throw an extra wrinkle into the first-party claims-paying process because your insurer will likely issue a check made out to you and your leaseholder or lienholder. That means you have to go to the bank or, even worse, mail your check to the financial institution for its signature. There's no telling how long that can hold up the return of your fixed vehicle, but count on doing some extra legwork.

When a lienholder's name is included on the check, it creates the burden of having the lienholder examine the vehicle in order to get the check endorsed. It can take weeks to get the check endorsed.

Typically, you must bring the vehicle to a dealership and ask a representative to sign a statement saying the vehicle has been repaired. You must then mail the repair shop's bill, photos of your repaired vehicle and the check to the lienholder or leaseholder. The bank or lender will then endorse the check, send it back and you can pay for your repair.

If your lender is a local bank, you'll probably need to have a bank officer examine your car so he or she can make sure it was repaired. This process can be time-consuming. It might not hold up your vehicle's repair; but it may delay the delivery of your repaired vehicle. A body shop can repair your vehicle but it generally won't return it to you until the bill has been paid. If your car is totaled, the insurer again has the option of making the check out to you alone, or to you and your creditor.

Third-party claim payments

If someone else smashes into your car and his or her insurance company is paying for the repairs, you are a third-party claimant. This is typically less of a hassle than first-party claims because you have no obligation to that insurance company. The insurer can't dictate to whom it pays the money because it doesn't have a policy contract with you. In most third-party claims, insurers pay the claimant directly.

If your vehicle has been totaled in a third-party claim situation, the at-fault party's insurance company will likely pay only you. Of course, if you have a lease or a loan, it's your responsibility to make sure your creditors get the money you owe them.

Knowing the claims-paying process can help expedite your repair and cut down on surprises. And, if you have a car lease or loan and make a first-party claim, you might do well to make an appointment ahead of time with a dealership or your bank for the inspection of your fixed car. That way, you can put the accident behind you, give the body shop its money, and get your car back.

If it's time to shop around for new car insurance, use Insure.com's annual list of the top-rated auto insurers to help you find a company that can save you money.

You may never see a check, though your car still gets fixed

While most insurers allow you to use whatever repair shop you like to put your car back together, many of them have a list of preferred or "Direct Referral Program" auto body repair shops. If you choose one of their preferred shops, the insurance company will usually pay the repair shop directly so you will never see a check. However, you will need to pay the deductible to the repair shop.

One of the benefits of using a preferred auto repair shop is that your insurance company will usually cover any additional work that did not come up on the original estimate. In addition, not having to read reviews and track down a reputable repair shop can save you time and trouble as well as the hassle of being a mediator between the shop and your insurer.

However, there can be downsides to using a preferred shop. Many of these repair businesses tend to be loyal to the insurance company, doing what they can to lower the repair bill for the insurer which can lead to cut corners or using parts that are not from the original equipment manufacturer which can void your vehicle's warranty.

Insurance regulations are set at a state level, so laws vary depending on where you live. As an example, Massachusetts requires that insurance companies make the check "payable to the claimant and the lienholder if applicable." Ohio is a bit more lenient, they allow insurers to dictate what shops claimants can use, provided they guarantee the work. The exact phrasing is: "If your insurance company requires you to use a specific repair shop, the company must guarantee the shop's work and assess no extra cost to you."

You own your car outright: Can you keep the claims check?

If you own your car and do not have a loan or lease on it, you can technically do whatever you want with the money the insurer pays out. It doesn't have to be used to repair or replace your vehicle. You can choose to look around for a cheaper mechanic to fix the vehicle, drive it as is or even fix it yourself if you have the skills. However, there are some things to consider if you make the decision to blow the money on vacation or a huge TV.

  • Future problems are yours: If you choose to ignore the repairs and the problem gets worse over time or results in additional issues with the vehicle your insurer is not going to pay up. You will be on the hook for any problems that result from not getting your car properly repaired. This is also true if your cut-rate mechanic makes a less than professional repair or actually manages to make the problem worse.
    • Future claims will be scrutinized: If you manage to get into another accident or suffer damage from a storm your insurance company will refuse to pay to repair previous damage that you elected to not repair. This is especially true for issues such as hail damage, where the chance for fraud exists. Your insurer will investigate your claim thoroughly and will often deny the claim if they feel the damage was pre-existing.
    • Some repairs are necessary or required: While you may be just fine driving a dented or hail damaged car, there are some repairs that are necessary. Always make sure that the damage doesn't impact any electrical or safety systems and if it does, you should absolutely have the damage repaired.

      State law usually requires a car to have bumpers and other specific features to be street legal. If those have been damaged on your vehicle they will need to be repaired before you get back out on the street. Check local laws to see what your state requires.

      Handle the money responsibly

      Regardless of whose name is on the check, you should handle the money in a responsible fashion, especially if you don't own the car outright. If the car can be repaired, the money should be spent getting it fixed, if you manage to get it repaired for less than the claim check, whatever is left over is all yours.

      If you still have a loan or lease on the vehicle you are legally required to get it repaired and you could be in serious trouble if you keep the money for yourself. Even if you plan on paying off the car in the future, there is no guarantee that something unexpected won't pop up, preventing you from paying off the loan. If your car ends up repossessed or returned after the lease is up, you will be held liable for damages to the car that was not repaired.

      If the car is totaled, you must pay off your car loan with the claim check or you could find yourself in legal trouble for breach of contract. If there is money left over after you have paid off the loan, it is yours to spend.

       

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