Insurance

Auto Accident: Use of Insurance Proceeds

Using insurance money for something other than the claim it's being paid for. Are there risks?

Insurance companies pay vehicle damage claims one of two ways: Directly to you, the policy holder, or directly to the repair shop that's repairing your car. This depends on the insurance company, but you're free to ask if you have a preference.

When an insurance claim is made directly to the policy owner, it's very tempting to use that money for reasons besides the repairs the money was meant for such as buying a new car or putting it toward a mortgage.

However, if you don't repair your car and have another accident, the value of your car will be further reduced, and you'll receive less money in this new claim.

Furthermore, instead of being able to have your car repaired and returned to you, the insurance company could declare it totaled and take it. How could this happen? Insurance companies usually have a choice between paying for car repairs or paying the customer the actual value of the car before the accident. If repairing the car would cost more than what the car was actually worth at the time of the accident, then an insurance company would most likely pay the customer the value of the car.

Also, pre-existing damages will lower the value of a car. So if there is already damage to your car and an accident occurs, this might be enough to make it cheaper for the insurance company to pay the actual value of the car rather than fix it. Note that in this situation, the amount of money you will be paid for your totaled car will be less than what it would have been had the previous repairs been made.

Check the contract that you signed when you purchased the car to see if there are any provisions the lender put in regarding repairs made to the car while there is a loan balance. You may still be responsible for repairing the car if you still have a loan for it.

Like many things in life, it's a risk. The question is whether or not you want to take that risk. The best thing to do would be to use the money for what it was meant for - repairing the car. Even if you never have another accident with that car, it will have a higher value when you go to sell it or trade it in on a new vehicle.

Questions For Your Attorney

  • What happens if the insurance company gave me money to make repairs on my car, but the actual repairs are cheaper than what was expected? What do I do with the extra money?
  • I used the insurance proceeds for something else. If I still make the needed repairs on my car, will that protect me if I get into an accident and have a future claim?
Related Resources on Lawyers.comsm

- Dealing With Insurance Companies
- Automobile Insurance articles and information
- Automobile Accidents articles and information
- Finding an Insurance Lawyer near you
- Visit our Insurance Claims message board for more help

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