If your car is damaged in an accident, the insurance company handling your claim may ask you to get an estimate of repair costs. The insurer might also inspect your car and get its own repair estimate. Once you and the insurer have agreed on an amount for the repairs, the insurer will pay the repair shop for the work or pay you directly.
If the money lands in your bank account, do you have to use it to get your car fixed? If your car is financed you probably do. If you own it outright you are free to use the money however you want, but you'll be responsible for any additional costs if the car's problems get worse.
Who Owns the Car—You, the Dealership, or the Bank?
If you are financing or leasing your car, the insurance company will likely pay the repair shop directly to protect the lender's interest in the car. You'll have no choice about what to do with the insurance settlement because you won't receive the payment.
But if you own the car outright, the insurer might send the payment directly to you. What should you do with the money? Get your car fixed or use the funds to buy that new TV you've been eyeing?
Learn more about vehicle repairs and car insurance claims.
Think Before You Spend
So, let's assume you own the car that was damaged in an accident. Unless your insurance policy contains language that requires you to use your insurance settlement for repairs, you are free to use this money for anything you want. But before you book a flight to Vegas, you should think about the drawbacks of not using the money to get your car fixed.
First, you've been paying premiums for the purpose of having car insurance coverage for exactly this type of situation. Second, using the settlement money to repair your car will maintain your car's actual cash value and increase its resale or trade-in value when you want to get a new car. And third, ignoring the damage may lead to further problems down the road, which will cost much more money to repair, and this additional damage will not be covered by your insurance.
You might want to pocket the insurance money rather than spend it to repair a few dents and dings, especially if your car is older and has limited resale or trade-in value. But, if your car is fairly new, chances are that the damage from an accident will significantly affect the car's value and may also affect its safety and performance.
"Total Loss" Declarations are Different
The insurance settlement process is a little different when the insurer decides your car is a "total loss" (totaled). A total loss car is a car that will cost more to fix than the car's current value. In most cases, insurers will pay you (or your lender if the car is financed) the actual cash value of a totaled car. You'll sign the title over to the insurance company and they'll sell it to a salvage buyer.
You might be able to keep a totaled car, but the insurer will deduct the salvage price for your car from your insurance settlement.
Talk to a Lawyer
If you have questions about the insurance claim process or want to know more about what you can and can't do with your insurance settlement, talk to a lawyer. A lawyer can answer your questions and walk you through your options. A lawyer might even be able to negotiate a better insurance settlement for you. Learn more about when to hire a lawyer after a car accident. You can also connect with a lawyer directly from this page for free.