Navigating Insurance Claims: Understanding The Use Of Payout Funds

When you file an insurance claim, you'll likely be dealing with an insurance adjuster, who is responsible for evaluating the damage and determining the dollar amount of the claim payout. The adjuster works for the insurance company paying the claim and will review what happened, estimate the claims payment, and inspect the damages.

But do you have to spend everything the insurance adjuster gives you on repairs? The answer depends on whether you own the property outright and on your insurance policy. If you own the property outright and your insurance policy doesn't require that the claims check goes to repairs, then the money from the claim is yours to spend however you choose. However, it's important to consider that once you've claimed damage, you can't claim it again, even if you don't use the money on repairs. Not making repairs could also compromise your safety, especially if the damage is more severe than you realize.

You don't have to spend everything an insurance adjuster gives you on repairs

If you own your car outright, you are not obliged to use the money from an insurance claim on repairs. You can choose to not repair your vehicle, or delay repairs, and spend the money on something else. However, if your car has suffered major damage, you will need to fix it eventually, so it might not make sense to wait. It is also important to consider safety; if your vehicle is unsafe, it is wise to use your payout to fix the problem. If you do not fix your car, its value will likely decrease, and additional damage may occur, which will not be covered by your insurance.

If you do not own your car outright, the decision about whether or not to keep the money from an insurance claim may not be yours to make. If you lease it or have a car loan, the decision may be made by the loan or lease company, who are also likely to be named as insured on your policy. The check from an insurance claim may be made out to both you and the company, so you will need their approval before cashing it.

When it comes to home insurance, the situation is similar. If you own your home outright, you can usually decide how to spend the money from an insurance claim. However, if you are still making mortgage payments, your bank may require you to use the money for repairs, as your home is the collateral for your loan. In this case, the bank may place the money in escrow and pay the contractor directly once the repairs are completed.

It is important to check the details of your insurance policy, as there may be stipulations regarding how repairs should be handled. Trying to deceive your insurance company could result in legal trouble. Additionally, if you do not restore your home or vehicle to its pre-loss condition, you may not be able to file a future claim for any further damage.

If you own your car, you can spend the money on whatever you choose

However, if you have a loan or lease on your car, then the decision about whether or not to keep the money from an insurance claim may not be yours to make. It's likely that your loan or lease company is also a named insured on your policy, and the check from an insurance claim may be made out to both you and the company, so you'll need them to sign off on the repairs before you cash the check.

If you lease or finance a car, the decision may not be yours

If you lease or finance a car, the decision about whether to keep the money from an insurance claim may not be yours to make. This is because your loan or lease company is also a named insured on your policy, and the check from an insurance claim may be made out to both you and the company. Therefore, you'll need them to sign off on the repairs before cashing the check.

Your lender's involvement will vary depending on the company, but they may require that you use the check for repairs and send them documentation proving that you followed through.

If you own your car outright and your insurance policy doesn't specifically require that the claims check goes to your auto body shop, then the money from a claim is yours, and you can basically do whatever you want with it. Your insurer fulfilled their responsibility to you by paying out the claim, and, as long as your policy and your state's laws allow it, you can keep the money for other uses.

However, pocketing the payout from an insurance claim may be considered fraud if you lease or finance your car.

Leasing vs. Financing a Car

Leasing a car means that you basically rent it for a specific and limited time period. Buying a car means that you own it outright and build equity in the vehicle with monthly payments (if you finance the purchase).

Leasing a car usually includes lower up-front costs, lower monthly payments compared to buying, and no resale hassle. On the other hand, buying a car usually means car ownership, complete control over mileage, and a firm idea of costs.

Experts generally say that buying a car is a better financial decision for the long term.

Lenders may require the money to be used for repairs

When seeking a traditional mortgage, you will most likely need to address repairs required by the lender. These lender-required repairs are specific fixes that a financial institution demands before they approve a mortgage on a home. They are intended to ensure that the property is in good condition and will retain its value over the term of the loan. While neither the seller nor the buyer is responsible for these repairs, and they are technically negotiable, they must be completed for the loan to be approved. This means that, in practice, one or both parties will usually end up agreeing to pay for them.

Lender-required repairs typically address safety, structural, and functionality issues in the property. For instance, a lender may require the repair of a faulty electrical system, a leaking roof, plumbing problems, or pest issues such as termite infestations. These repairs are usually identified through an appraisal report and any disclosure notices from the seller.

If the buyer and seller cannot agree on who will pay for the repairs, the purchase agreement can be terminated, and the buyer will receive their earnest money back. In some cases, the sales contract may dictate who is responsible for certain types of repairs. However, if the contract is silent on the issue, the parties will need to negotiate. In a buyer's market, buyers may have more power to demand that the seller pays for the repairs, while in a seller's market, the seller may refuse, confident that another buyer will come forward.

One option for sellers who don't want to deal with lender-required repairs is to sell their home to a cash buyer. This bypasses the need for a mortgage and the associated repairs, as cash buyers typically purchase properties "as is". However, cash buyers may offer less than market value to compensate for the repairs they will need to undertake.

You can hire a public adjuster to help you negotiate a higher settlement

When you file an insurance claim, you will have to work with an insurance adjuster from your insurance company. The adjuster evaluates your property, collects evidence on the extent of the damage, and rules on your claim. However, the adjuster does not advocate for you. They are paid to calculate the lowest possible compensation on your insurer's behalf.

Public adjusters use proven tips and methods to ensure the maximum amount of coverage possible. They can help you document everything you've lost and spot potential damage the insurance company's adjuster might have missed. They can also save you time, as filing a large insurance claim requires significant time and energy.

Public adjusters generally work on large, complex claims. For example, recovering after a hurricane can be especially challenging because it often means filing claims on different policies. If your home has been damaged by a fire or windstorm, your insurance company will send their adjuster, but you can also hire a public adjuster to evaluate the property loss on your behalf and help you file insurance claims.

Public adjusters usually charge anywhere from 5% to 20% of the total settlement. However, in some cases, you'll pay a flat or hourly rate. Some states cap the fees, and they may be negotiable.

Frequently asked questions