UPDATED: Mar 13, 2020
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So you’ve received a payout from your car insurance company. Do you have to put that payout towards car repairs? Or can you pocket the money and continue using your vehicle as-is?
Today, we’re answering all your questions about keeping auto insurance payouts, including whether or not you can legally keep the money you receive from your insurance company.
You Can Typically Keep the Payout (Assuming You Fully Own the Vehicle)
Typically, there’s nothing stopping you from keeping your car insurance payout – assuming you fully own your own vehicle. Your insurance company will assess the damages and your claim. You’ll pay your deductible, and your insurance company will send you a check.
Your insurance company will assume that you’re using the cash to repair your vehicle and restore it to pre-loss condition. That’s what the money is for. However, there’s nothing preventing you from keeping the payout – assuming the check is in your name.
Sometimes, drivers will pocket the cash and attempt to repair the issue at home. In other cases, drivers will continue driving their vehicle as-is (assuming it’s in sufficient driving condition). Sometimes, you just have a friend or relative who’s good at repairing vehicles and can fix the issue for a much lower price than an auto shop would charge.
In all of these situations, it’s perfectly okay to just keep the money from an auto insurance payout and avoid putting it towards repairs – assuming you fully own your vehicle.
What Happens If You Don’t Fully Own your Vehicle?
If you don’t fully own your own vehicle, then you will not be able to pocket your auto insurance payout.
If you’re still making car payments, then you don’t fully own your own vehicle. The car dealership, financing company, or bank owns at least part of your vehicle.
In this situation, you’re required to use your car insurance payout to repair your vehicle to pre-loss condition.
Sometimes, Car Insurance Companies Pay Car Repair Shops or Leasing Companies Directly
Sometimes, car insurance companies will write a check directly to you. You’re free to cash this check and spend it however you like.
In other situations, the insurance company writes a check directly to an auto body shop. This money is required to be used to repair your vehicle.
The insurance company may also write a check to your leasing company – say, if you don’t fully own your vehicle. In this situation, again, the money is required to be used for repairs.
Should You Pocket the Car Insurance Payout?
We’ve established that you can keep the car insurance payout if you want to – assuming you own your own vehicle. The next question is: should you keep the car insurance payout? Or is it in your best interest to repair your vehicle?
Typically, it’s in your best interest to use the money to repair your vehicle – but it’s up to you and your unique situation.
If your car has suffered major damages, then you’re going to need to repair those damages at some point. Unless you’re willing to leave your car broken on your driveway for an extended period of time, there’s no reason to avoid repairing it today.
It’s also important to note that if your vehicle is in unsafe condition, then you should probably use your payout to fix the problem. Some people pocket the insurance payout, continue driving an unsafe vehicle, and then get into another collision soon after.
Nevertheless, in times of economic hardship, “cashing out” can be particularly popular. Let’s say your secondary vehicle is damaged and you receive a payout from your insurance company. You can pocket the insurance payout, use that money to pay for more immediate bills, and carpool with your spouse to work every day.
You Can’t Keep the Money and your Vehicle If Your Car is Totaled
If your car was totaled during a collision, then your insurance company will cut you a check for the value of the vehicle.
Some drivers mistakenly believe that they get to keep the vehicle and get the payout. Typically, this isn’t the case. You can’t have your cake and eat it too. Instead, the insurance company will take possession of your totaled car as a condition of the payout. If you feel your car is still roadworthy, then you can decline the insurance payout and keep the totaled vehicle. You will not receive a payout unless you give up the totaled vehicle.
Typically, you’re allowed to keep the money after a car insurance payout. The only times where you can’t keep the money include:
- If you don’t own the vehicle (you’re still making car payments)
- The check from your insurance company is made out to a leasing company or auto body shop
In these situations, you may be required to use the money to repair your vehicle. Additionally, if your car is totaled, you won’t be able to pocket the insurance money and keep your vehicle.
Otherwise, however, there’s nothing stopping you from keeping the money from a car insurance payout.