Auto Insurance Claims: Payout Process Explained

Understanding how auto insurance payouts work is essential for setting realistic expectations about how much you can receive and when you'll get paid if your car is damaged or totaled. The process typically begins with filing a claim, which can be done through your insurance company or the other driver's insurance company if they are at fault. Once your claim is approved, the insurance company will determine the value of your vehicle and the payout amount, taking into account factors such as the make, model, and pre-loss condition of your car. After you agree to the payout, the insurance company will issue a check or set up a direct transfer to your bank account. It's important to note that if you have a loan or lease on your car, the lender or leasing company may have certain requirements and restrictions on how the payout is handled.

Claim approval and payment

The first step in the auto insurance payout process is for your claim to be approved. This can take around 30 days, but the exact timing will depend on the insurance company. Once your claim has been approved, your insurance company will send you a settlement check directly, and you can then cash it and use the money to pay your mechanic. However, there are some exceptions to this process.

If you have a lease or loan on your vehicle, the insurance company will likely issue a check addressed to both you and the lienholder for car repairs. In this case, you will need permission from the lienholder before cashing the check. The lienholder may require you to fix the vehicle and may even ask you to sign the check over to them so they can pay the auto body shop directly. If you don't have permission from the lienholder to cash the check, you could face delays in getting your payout.

If you choose to work with one of your insurance company's preferred auto body repair shops, the insurance company may pay the repair shop directly. In this case, you will only be responsible for paying your deductible to the mechanic. Going with a preferred auto repair shop can increase the speed and efficiency of the repair work and save you from acting as a mediator between the shop and your insurance company.

If your vehicle is deemed a total loss, your insurance company will likely keep the vehicle as a condition of the payout. In most states, you will not receive your payout unless you give up your car. However, a few states will allow you to retain a salvaged vehicle if you pay the salvage value to the carrier and obtain a salvage or rebuilt title.

If you own your car outright, you can choose not to repair your vehicle or delay repairs with the money you receive from the auto insurance payout. You are not required to use the compensation you receive from the auto insurance company on repairs, but there are some considerations to keep in mind. For example, if your vehicle has suffered major damage, you will likely need to fix it eventually, and driving an unsafe vehicle could put you and others at risk. Additionally, if you do not make repairs, the amount of damage will likely reduce the value of your vehicle, and any additional damage that occurs due to your negligence may not be covered by your auto insurance.

Payment methods

Payment to the Policyholder

The insurance company typically sends the payout directly to the policyholder, especially if they own the vehicle outright. This payment method applies when the policyholder has a comprehensive, collision, or uninsured motorist policy and can use the funds towards repairing or replacing their vehicle. The policyholder has the flexibility to choose how they spend the money, but it is essential to consider the implications of not using the funds for necessary repairs.

Payment to a Repair Shop

In some cases, the insurance company may send the payout directly to a preferred or authorised repair shop. This arrangement ensures that the repairs are completed promptly and efficiently, and the insurance company may cover any additional work required. This payment method can streamline the process by eliminating the need for the policyholder to act as a mediator between the insurance company and the repair shop.

Joint Payment to the Policyholder and Repair Shop

In certain situations, the insurance company may issue a joint payment to the policyholder and the repair shop. This approach ensures that the policyholder has some control over the repair process and can directly authorise the repairs with the shop.

Joint Payment to the Policyholder and Lienholder

If the vehicle is financed or leased, the insurance company usually includes the lienholder (lender or leasing company) on the payout. The cheque may be addressed to both the policyholder and the lienholder, requiring the lienholder's endorsement before cashing. Alternatively, the policyholder may be required to sign the cheque over to the lienholder, who will then pay the repair shop directly. This payment method ensures that the vehicle is maintained according to the terms of the lease or loan agreement.

Payment to the Lienholder

In some instances, the insurance company may send the payout directly to the lienholder, especially if the vehicle is leased or if the lienholder has specific requirements for insurance claims. The lienholder will then use the funds to pay for the repairs or settle the remaining balance on the lease or loan.

State-Specific Variations

It is important to note that state laws can influence the payment methods for auto insurance payouts. For example, in Massachusetts, insurance companies are mandated to address the payout cheque to the policyholder unless they specifically request otherwise. In contrast, some states require lienholders to be named on insurance policies and claim cheques. Therefore, it is essential to review the specific regulations in your state to ensure compliance with the law.

When you don't have to repair your car

If you don't want to repair your car after receiving a payout from your auto insurance, there are a few things to consider. Firstly, it depends on whether you fully own your vehicle or if you're still paying off a loan or lease. If you don't own your car outright, the money awarded for repairs will likely go directly to your repair shop, and you won't have a choice in the matter.

If you do own your car, you can choose not to repair it and instead use the money from the insurance payout for something else. However, this is not recommended for several reasons. Firstly, if your car has suffered major damage, you will likely need to fix it eventually, so delaying repairs could lead to further issues and more costly repairs down the line. Secondly, driving a damaged car may be unsafe, and it could reduce the value of your vehicle if you decide to sell it in the future. Additionally, your insurance company may refuse to offer coverage on a vehicle that has not been repaired, and they will not pay for the same repairs twice.

In some cases, your insurance company may send the claims check directly to the auto repair shop, and you won't have the option to pocket the money. This is often done as a way of ensuring that the money is used for repairs. Therefore, it's important to check with your insurance provider to understand their specific policies and requirements regarding claim payouts.

State laws on insurance payouts

For instance, nearly all states require a minimum amount of liability insurance. This coverage helps pay for any injuries or damages you cause in a car accident, including those of the other driver and their passengers.

Uninsured/underinsured motorist (UM/UIM) coverage is required in about half of all states. UM/UIM coverage helps cover the cost of injuries to you and your passengers, as well as damage to your car and other property, if you're hit by a driver with little or no insurance. Some states only require you to purchase coverage for bodily injury.

Personal injury protection (PIP) is required in no-fault states, but a few at-fault states also require it. PIP covers medical expenses for insured drivers and their passengers, regardless of fault. It can also cover lost wages or other benefits not covered by health insurance.

Medical payments coverage is only required in the state of Maine. This coverage goes toward medical expenses due to injuries from a car accident. It covers you, your family, or your passengers. It doesn't cover lost wages or any additional benefits.

Some states have requirements for the threshold for repairs that insurers can use to determine if they declare a vehicle a total loss. Other states may have requirements about liability coverage or require taxes and fees for replacing your vehicle to be included in the payout.

In terms of total loss thresholds, some states use a total loss formula, while others use a simple percentage threshold. For example, certain states, such as New York, Colorado, Florida, and Texas, use a set percentage of the car's value to determine a total loss. This ranges from 60% to 100% of the value, depending on the state. If the vehicle repair costs surpass the percentage, insurers declare the car totaled.

Some states mandate payments within a specific timeframe. For example, in Missouri, insurers have 10 days to acknowledge receipt of the claim, then 15 days to decide on that claim, and finally, they must make a prompt payout without a specific timeline.

What to do with leftover money

If you have leftover money from your auto insurance payout, the first thing to consider is whether you fully own your vehicle. If you don't, the money awarded for repairs will likely go directly to your repair shop.

If you do own your car, you can choose to not repair your vehicle, or delay repairs, and keep the leftover money. However, if your car has suffered major damage, you will likely need to fix it sooner rather than later. Even if you use your auto insurance payout for something else, you will still need to make the repairs eventually. It is also important to note that if you do not make repairs immediately, your vehicle may incur additional damage, which will not be covered by your auto insurance.

If your vehicle is deemed a total loss, in most states, your auto insurance company will possess your totaled car as a condition of its payout. There are a few states that will allow you to retain a salvaged vehicle if you pay the salvage value to the carrier, but you will need to obtain a salvage or rebuilt title.

If you do decide to keep the leftover money, it is recommended that you contact your insurance company to let them know that there is money left over from the insurance check and see how they want to proceed.

Frequently asked questions