Can you keep cash from a car insurance payout and not fix your car?

You were in a car accident that caused moderate cosmetic damage. Luckily, you escaped the incident without injuries and have a cooperative insurance adjustor who cuts you a check for the damages. The insurance claim check arrives giving you the cash to repair your vehicle, but other financial concerns seem more pressing. Do you have to use the cash from a car insurance payout to repair your vehicle, or can you use the money for other purposes? 

Maybe you need to pay down your credit card balance or want to treat your spouse to a well-deserved vacation. As with so many insurance claim questions, your course of action depends on a few important factors, outlined by Ellis Injury Law. When in doubt about how to spend your insurance claim check, it’s always wise to consult with a personal injury attorney. 

Whether or not to cash out your insurance claim check 

If the damage to your car is strictly cosmetic and not affecting the safety or roadworthiness of your vehicle, repairs may not be your top priority. But you may worry that using the payout for other things is considered insurance fraud. If you own the vehicle outright, the short answer is no. But there are some other considerations to take into account before cashing the check.  

Read the fine print in your insurance contract 

Insurance carriers will have specific language in the contract on how damage claims are paid out. Even if you own the car outright, some companies have strategic partnerships with auto body repair shops and will pay them directly, taking you, the car owner, out of the equation.   

Is your car leased or financed by a lender? 

If you are currently leasing your vehicle or are still making payments on it, then you will not be able to spend the insurance payout as you please. In other words, the bank, financing company or car dealership still technically owns at least part of your car. For this reason, they will likely mandate that you list them on your auto insurance policy as a ‘loss payee’. After your claim is filed, the insurance company will probably issue a check to the loss payee alone, or make the check payable to both you and the lender. 

The vast majority of lenders will require that the insurance claim check is used to fix your vehicle. If you cash the check (made out to both of you) without your leasing agency or lienholder’s endorsement, this could land you in legal trouble under theories of insurance fraud. 

Even if the insurance claim check is made payable only to you, your car loan agreement would still mandate that you alert the lien holder about the accident and insurance payout.  

Should you spend the payout and not fix your vehicle? 

Let’s assume the car is fully paid for and in your name. Your auto insurance policy contains no stipulations about how to use your claims check and since you aren’t particularly bothered by a few dents and some chipped paint, you decide to spend the cash on anything but fixing your car. Is this a smart idea?  

If you are driving a 15-year old vehicle, minor cosmetic damage will not drive down the resale value measurably. However, if your car is relatively new, any unrepaired damage can diminish its value if you file another claim with your insurance company, as they will not pay twice for the same repairs to be fixed. 

You also want to consider if the damages, even if not noticeable, can negatively impact the car’s mechanical performance or safety. For example, a fender bender undermines your wheel assembly, but you continue driving daily and ultimately compromise the front-end chassis. In these kinds of situations, your auto insurance company may question the legitimacy of a secondary claim if you have another accident. 

Trusted legal advice you can count on 

No one ever anticipates being in a collision, but when one happens one of the best Los Angeles car accident attorneys can ensure your claim is filed correctly and the compensation is fair.  

If you need seasoned legal guidance in Los Angeles regarding a car accident claim, Ellis Injury Law provides effective representation on a contingent-fee basis. Call our offices anytime toll-free to schedule a complimentary case review with one of our Los Angeles personal injury lawyers who will protect your interests.