Do I have to use insurance money for repairs?

You’ve filed a claim, you’ve gone through the assessment process, and finally an insurance company has written you a check for the damages. During this process, though, you may have wondered if you really have to use the insurance money for its intended purpose – the repairs. Is it legal to just pocket the money, use it for something else, and walk away? As with most things insurance, it depends. Here’s why.

Do I have to use an insurance check for repairs?

There are three major ways that an insurance company can pay out for a claim. Your ability to just use the cash for whatever you want depends on how your carrier issues the check.

1. Your carrier could pay you directly.

Let’s get the easiest, less sticky scenario out of the way. If you are the only person listed on the insurance check, then technically, no, you don’t have to use the insurance money to make repairs. After your carrier gives you what they feel is a fair payment, they have fulfilled their legal obligation to help you get everything back to normal. Once that check is issued, your insurance company really could not care less what you do with the money.

Taking the money and running, though, could have more consequences down the road. If another issue pops up in the future because of something that wasn’t repaired, a carrier could deny your new claim. So, while you can simply pocket the insurance money from a claim, it may be a better idea to go ahead and get the repair done.

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2. Your carrier could name your lender as a co-payee.

If you’re still making payments on your house or car, you may have to use your insurance check for repairs whether you want to or not. As a lender, your mortgage or car loan company has invested in your car or house. Therefore, they’ll want to make sure that their investment is safe, in good condition, and working properly. To ensure this, it may have been a requirement that your lender must be named as a co-insured or as a co-payee to any insurance funds that are paid out.

In this case, a claim check could be made out to you and your loan company. Therefore, to cash the check, you would need the loan institution to sign off on the check – which they may be a little hesitant to do if they know that the money isn’t going to fixing their investment. This caveat can depend on the terms of your insurance policy, your loan, or your state laws. In any case, if you see your lender’s name on your insurance check, just know that there might be a few more hoops to jump through to simply cash it out.

3. Your insurance company could pay for repairs directly.

In certain cases, insurance carriers will want to know that related claims to this incident won’t come up in the future. So, your insurance may end up either asking for your preferred repair shop or contractor to give the check to or they may pay one of their preferred contractors/repair technicians directly.

Before your insurance pays the third party, though, the repair company will probably ask you to sign a “direction to pay” form. While this may make the payment process more streamlined, it does mean that you won’t have any more control over that claim. So, make sure you read the document and go over everything with your insurance agent before you sign over the funds.

Again, the way that your insurance pays out a claim and how they handle repairs can depend on state laws, the terms of your insurance policy, or the terms of your loan. So, if you find yourself in a situation with more than one name on the insurance check, don’t panic, and when in doubt, talk to your agent.

At the end of it all, if you do end up with the ability to cash an insurance check for yourself, there won’t be any scary insurance fraud people coming to take you away. Your insurance is there, ultimately, to help you in the best way they know how. If they’ve decided that the best way to help is to issue you a check or other sum of money directly, it’s now up to you to determine how best to use it.

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