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

When your vehicle is damaged in an accident, filing a car insurance claim is the first step toward getting it repaired. However, some policyholders may keep the claim money instead of making the necessary repairs.

Generally, once your insurance company issues a payout for your claim, you can use that money as you see fit — whether that means saving it for future repairs or using it for other financial needs. However, this typically only applies if you own your car outright. If your vehicle is financed or leased, your lender or leasing company usually requires that the money go toward approved repairs to protect their investment.

If you decide to pocket the claim, there are tradeoffs to consider.

Keeping the claim money without making repairs can lead to complications. Insurance companies may deny future claims if they discover the original damage wasn’t addressed. It can also lower your car’s value and potentially compromise safety if the damage impacts how the vehicle functions.

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 drivable, hanging onto the insurance payout instead of fixing the damage might seem like an easy win. However, there are some risks and tradeoffs to keep in mind.

Liens

If your car is financed or leased, the insurance company will include the lienholder on any payouts, and you must use that money for repairs. Failing to do so can violate the terms of your loan or lease agreement. 

Impact on future claims

Skipping repairs can lead to complications with future claims. If your car is involved in another accident and the previous damage was not repaired, the insurance company might refuse to cover the new damage or reduce the payout.

Reduced resale value

Leaving damage unaddressed can significantly undercut your car’s resale value. Buyers know they’ll inherit repair costs, so they’ll either walk away or slash their offer.

Safety risks

Even if the damage appears purely cosmetic, there may be underlying conditions that aren’t immediately visible. A mechanic might catch and fix these problems during the repair process. But if you skip repairs, you could unknowingly compromise your car’s safety, and that risk may not show up until it’s too late.

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. 

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.