Can You Fix Your Own Car With Insurance Money?


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Updated: May 20, 2024

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If you own it outright, you can often use insurance money to fix your car. However, how you can use the payout may differ if you're financing or leasing your vehicle. While a car owner might receive the check directly, drivers with financed or leased cars might see the payout go straight to the repair shop.

Reviewing your insurance policy to ensure it permits self-repairs before deciding to repair the car on your own is crucial. We also recommend familiarizing yourself with state laws, as some may have specific regulations about DIY car repairs.

While using the money for other purposes might be tempting, it's not always a wise choice. For instance, neglecting necessary repairs can lead to bigger issues down the road, potentially costing you more and decreasing your car's resale value.

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Key Takeaways

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If you own your car, your policy will dictate whether the payout comes to you or goes directly to the repair shop.

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For financed cars, the insurance typically sends the money straight to the repair shop.

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While you have the choice to use the payout for purposes other than repairs, claiming again for the same damage can lead to fraud allegations by your insurer.

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Do You Have to Fix Your Car With Insurance Money?

If you own your car, your insurance provider might hand you the check (minus deductible) or pay the repair shop directly. Even if you opt for a repair shop outside their preferred network, they often send the payment straight to the shop.

Financing or leasing your car? Often, you won't be able to decide how the payout is used. Typically, the settlement goes directly to the body shop.

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    You Own the Car

    • If you have full ownership of your car, the insurance provider might issue the payout check directly to you, giving you discretion on how to use the funds.
    • For example, after assessing the damage from a minor accident, you decide to use a portion of the insurance payout for repairs and save the remainder for future car-related expenses.
    • Especially if you choose a repair shop from the insurer's network, the insurance company will send the payment directly to the shop. This ensures the funds are used specifically for the intended repairs.
    • For example, you select a repair shop from your insurer's preferred list. The shop provides an estimate, and the insurer pays them for the repair costs.
    • Some insurance policies allow you to choose your own repair shop. However, even if you opt for a shop outside the insurer's network, the insurance company might still send the payment directly to ensure the shop addresses the damages.
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    You’re Financing Your Car

    • Your lien holder (the entity you owe money to) is often included in your insurance policy when financing a car. They have a vested interest in ensuring the vehicle remains in good condition.
    • The lien holder typically has a say in how you use the insurance payout. Unless there's a specific agreement with your lien holder about damage handling, the insurance settlement is usually given directly to the shop to guarantee they restore the car to its pre-accident condition.
    • Example: After a significant accident, your car requires extensive repairs. As part of your policy, the lien holder decides that the insurance payout should go directly to a certified repair shop to ensure quality work.

When deciding how to use your insurance payout, consider the terms of your policy and your car's ownership status. Always prioritize safety and the long-term value of your vehicle. If in doubt, consult with your insurance agent to understand your options. Remember, making informed decisions now can prevent potential complications down the road. Whether you own your car outright or are still financing it, ensure that repairs align with safety standards and maintain its value.

Can I Keep the Extra Money From an Insurance Claim?

Yes, in certain situations, you can keep the extra money from an insurance claim, but it largely depends on your car's ownership status and the terms of your insurance policy:

  • You Own Your Car Outright: If you own your car (no financing or lease), and the insurance payout exceeds the repair costs, you can typically keep the difference. For instance, if your insurance company issues a check for $3,000 for damages, but the repairs only cost $2,500, you can pocket the remaining $500.
  • You're Financing or Leasing Your Car: If you have a loan or lease, the insurance payout might go directly to the repair shop or lienholder. Any extra funds usually return to the insurance company or are applied to your loan balance.
  • Policy Terms: Some insurance policies specify how to use payouts. Always review your policy or consult with your insurance agent.

Some states have specific rules about insurance payouts and how you can use them. It's essential to be aware of local regulations.

What Are State Regulations on Insurance Payouts?

Some states require you to use insurance payouts for repairs to promote road safety. If you finance or lease your vehicle, many states send the payout directly to the lienholder or repair shop to protect their investment.

If the repair costs are less than the payout, some states ask you to return the extra money or put it towards your loan. Some states also make insurance companies pay if repair shops charge more than the estimated amount. They may also ask for proof that you used the payout for repairs.

Each state has its own rules about how to use insurance payouts. These rules protect consumers and the insurance industry from fraud.

Misusing insurance payouts can lead to penalties, like higher premiums or legal issues. Vehicle owners should learn their state's rules about insurance payouts. If you need clarification, talk to an insurance agent or lawyer.

Navigating state regulations on insurance payouts can feel like a maze. Each state has unique guidelines, from California's rules on lienholders to Georgia's stance on diminished value claims. Dive into these examples to decode the intricacies of regional insurance norms.

State
Payout Regulation Example

California

  • California has a "Fair Claims Settlement Practices Regulations" that requires insurance companies to offer a fair settlement based on what a reasonable person would expect to receive.

  • If an insurer decides to repair a vehicle, they must guarantee the repairs, even if you seek repairs at a shop outside the insurer's network.

Texas

  • In Texas, if the cost to repair the damage is more than 100% of the car's actual cash value (before it was damaged), it's considered a total loss.

  • Texas uses a "fault" system in which the person found responsible for the accident is liable for damages.

Florida

  • Florida follows a No-Fault system, meaning that after most traffic accidents, an injured person's own insurance policy will pay some or all of their medical bills and lost earnings, regardless of who was at fault for the accident.

  • The state requires drivers to carry a minimum of $10,000 in Personal Injury Protection (PIP) coverage.

Georgia

  • Georgia is one of the states that allows claims for diminished value. Suppose you have your vehicle repaired after an accident. You can claim the difference between its market value before and after the repairs because some buyers might see it as less valuable due to its accident history.

New York

  • New York is a "no-fault" state, meaning that drivers turn to their own insurance companies to pay the costs of medical expenses and lost earnings after an accident, regardless of who was at fault.

  • However, for property damage, the at-fault driver's insurance pays.

Remember, these are just specific examples, and the details can vary even within these examples based on particular circumstances, policy details or evolving regulations. Always consult your state's insurance department or a local insurance agent for the most accurate information.

What Happens if You Don’t Use Insurance Money for Repairs?

When you receive an insurance payout after a car accident, the decision to repair depends on car ownership. For owners, not repairing can affect future claims, resale value and safety. For those financing or leasing, not using the payout can breach agreements, affect future claims and result in penalties. Always consider long-term implications.

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    You own the car

    If you own your car and choose not to use the insurance payout for repairs, be aware of the following:

    • Not repairing now may affect future claims. If the same area is damaged again, insurers might not cover it.
    • Filing a claim on the same damage twice can lead to accusations of fraud.
    • Some policies may have specific requirements for payouts.
    • Unrepaired damage can lower your car's resale value.
    • Switching insurers later could result in higher premiums due to existing damage.
    • Driving a car with compromised safety features can have legal implications.
    • Even minor damage might pose safety concerns.

    Always weigh the immediate savings against potential long-term risks.

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    Your car is on a lease or is financed

    If you're financing or leasing your car and opt not to use the insurance payout for repairs, consider the following:

    • Lienholders and leaseholders often require repairs to protect their investment. Payouts might go directly to them or the repair shop. Not adhering to your agreement's terms might invite legal action.
    • Your agreement likely mandates the car's upkeep. Ignoring repairs can breach this.
    • Unfixed damage can lead to penalties when returning a leased car.
    • Unrepaired damage can complicate future insurance claims.

    When you don't own the car outright, there are more stringent requirements and potential consequences for not using an insurance payout for repairs. Always consult your financing or lease agreement and consider the long-term implications.

Do Insurance Companies Report to Lienholders?

When you finance a vehicle and file a claim for damages, your insurance company typically notifies the lienholder. The lienholder has a financial stake in the car and should be informed about issues affecting its value.

Usually, within 30 days of a claim, the insurer sends details to the lienholder, including damage estimates and contact info. The notice will include information about the claim, such as the damages amount, the estimated repair cost and the insured's name and contact information.

The lienholder has the right to inspect the damaged property and to provide input on the settlement of the claim.

Here are some additional things to keep in mind about insurance companies reporting to lien holders:

  • Only financed vehicles involve lienholder notifications.
  • Minor damages might not trigger a report.
  • Some agreements between the insured and lienholder might waive notification rights.

Note that the insurance company's reporting to the lienholder does not mean the lienholder will be entitled to all the claim proceeds. The insurance company will still need to consider the insured's liability and the policy's coverage limits.

Can I Repair My Own Car After an Accident?

Another option is to keep your insurance company entirely out of the equation.

For example, if your car is still workable and only has a small dent, and you’re trying to avoid claims on your insurance record, you can repair your car yourself. But there are a few things you need to consider first.

1
Review Your Policy

Before diving in, ensure your insurance policy doesn't have clauses preventing self-repairs after an accident. If it does, you'll need a professional's touch.

Some insurance policies may have clauses that require policyholders to report any incident, even if they don't intend to file a claim. Failing to do so could be a violation of the policy terms.

2
Check State Laws

Some states may require drivers to report accidents that exceed a certain damage threshold or result in injuries, regardless of whether they plan to file an insurance claim.

3
Assess Your Expertise

Safety first! If you're not well-versed in car mechanics, it might be best to leave repairs to the experts. A botched job could lead to more issues down the line.

4
Other Parties Involved

If another party is involved in the incident, reporting the damage is generally wise. The other party might decide to file a claim or take legal action, and having a documented report can be crucial.

5
Seek a Professional Estimate

Get a mechanic's estimate even if you're leaning towards a DIY approach. It'll give you a clear picture of potential costs and whether the DIY route is cost-effective.

6
Post-DIY Repairs

You can still file a claim if your self-repairs don't pan out as hoped. However, be transparent with your insurer about the steps you've taken, as it might affect the claim's outcome.

It's always a good idea to familiarize yourself with your insurance policy's terms and state laws. When in doubt, consult with your insurance agent or a legal professional.

Pros and Cons of Not Filing a Car Insurance Claim

Not filing a car insurance claim can prevent rate hikes, maintain claim-free discounts, save on deductibles and avoid policy non-renewal. However, drawbacks may include bearing repair costs, potential legal liabilities, complications in future claims and missing out on comprehensive coverage. It's crucial to balance immediate benefits with long-term implications and seek expert advice.


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Pros

  • No Rate Increases: Filing a claim, especially if you're at fault, can increase insurance premiums. By not filing, you might avoid a rate hike.
  • Maintaining Claim-Free Status: Some insurers offer discounts for remaining claim-free. By not filing, you can continue to benefit from such discounts.
  • Avoiding Deductibles: If the damage is minor and the repair cost is close to or less than your deductible, paying out-of-pocket might make more financial sense.
  • Preserving Policy Status: For those with multiple past claims, not filing another might prevent the risk of policy non-renewal.
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Cons

  • Out-of-Pocket Costs: You'll be responsible for all repair costs, which can be substantial depending on the damage.
  • Potential Liability Issues: If another party is involved and you choose not to file a claim, they might pursue legal action against you for damages. Without a claim, your insurer might not provide legal defense.
  • Complications with Future Claims: If damage from this incident exacerbates future issues, the insurer might dispute or deny future claims.
  • Missed Comprehensive Coverage: If the accident was due to external factors like weather or theft, not claiming might mean missing out on comprehensive coverage benefits.

In all situations, weighing the immediate benefits against potential long-term consequences is essential. Consulting with your insurance agent or a trusted financial advisor can provide clarity tailored to your specific situation.

Frequently Asked Questions

Can you pocket insurance claim money?
What if the repair cost is less than the insurance estimate?
Can I get my car repaired before an insurance claim?

About Mark Fitzpatrick


Mark Fitzpatrick headshot

Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.


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