What to do with car insurance claim checks?

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If you’ve ever been involved in an accident that caused some damage to your car, you probably went through the whole process of getting the damaged assessed, repair quotes submitted and, finally, a check in the mail! Many people wonder what the insurance claim check cashing laws are and if you have to spend the funds for the designated repair.

You may have decided while you wait that the large dent on your door is something you can live with and the car insurance claims check may be better used to cover a medical bill or put towards the down payment of a newer car. Read on to explore your options when it comes to keeping a car insurance check instead of repairing your car.

When do you have to spend an insurance check for car repairs?

Insurance claim check cashing is a grey area. After all, many checks don’t explicitly state what you can and can’t do with that check. Insurance check cashing laws are easier to figure out than you think.

The check is made out to two parties

If the check came from your insurance company, they may have written the check out to you and to the approved body shop. Insurance companies tend to issue two-party checks to reduce the chances the check is used for something other than the intended repair.

The check isn’t always written to you and the mechanic. In some situations, such as a total loss, the check is written out to you and your lender, known as the lienholder, and you’re expected to pay off your loan with the check provided.

In either case, the secret to knowing what to do with a two-party check is whether the names include “and” or “or”. If “or” is present, you can cash the check alone. If the names are joined with “and” you’re expected to complete the repairs at the named body shop by signing the check over to them.

The check is made out to a lienholder

If the check was made out to you and your car loan provider, you can’t exactly cash the check. You’ll need to endorse it by signing the back and send it to your lender to pay off your car loan.

But what if the check was for a repair? Now things get time consuming. You’ll need to get the lienholder (or leaseholder, if it’s a lease) to sign the check, which could take weeks if it’s all handled by mail. The process follows these steps:

  • Send the lienholder the check.
  • Have the vehicle repaired.
  • Take the car to a dealership when complete and ask a representative to inspect the repair and sign off on it.
  • Send the lienholder the statement from the dealer, repair bill and photos.
  • Wait for the lienholder to review your documents, sign off on the check and mail it back to you.
  • Cash the check and pay the repair shop when you receive it.

When do you not have to spend an insurance check for car repairs?

Determining if you can keep the insurance check for yourself – instead of spending it on car repairs – you have to consider a few factors.

The claim check is from someone else’s insurance company

If the check came from someone else’s insurance company, you’ve got the simplest situation. You may have been in a crash that’s not your fault and the responsible party’s insurance company makes good on your claim and cuts you a check. The third-party insurance company can’t tell you what to do with the funds. You may deposit the check, cash it, repair the vehicle or use the funds for something else. It’s all up to you.

Keep in mind that if you’re leasing the vehicle, what you do with the check is your choice — but you may have to eventually repair the car damage before returning it. And if the car was totaled and you’re receiving a check for the loss, you’ll be responsible for paying your lender the money owed to them to close out the loan.

The check is more than the repairs

If the repair ends up being less than you expected or you decided to go with a cheaper body shop, for example, you can keep the difference. There are no insurance check cashing laws against it.

What are the major differences between state laws?

At this time, the only significant state legislation regarding insurance checks exists in Massachusetts. The law isn’t restrictive. Instead, it provides you with the option of receiving a “direct payment” you can use at any body shop of your choice. Otherwise, insurance companies reduce insurance claim check cashing fraud by using two-party checks to ensure the funds are used for what they’re meant for.

Frequently asked questions

Can I spend less than what I was paid by the insurance company for a car repair?

If the check was solely written to you and you’d like to use a different repair shop and save some money, you may do so and keep the difference.

What if I don’t want to deal with an insurance check with a lienholder?

Knowing how to cash an insurance check with a lienholder meant for a repair is complicated and time consuming. You can always speak with the insurance company about the situation, choose to have the insurance company pay the body shop directly and send the check back to the insurer.

What is the best car insurance company?

Which car insurance company is best depends on what you’re looking for. Some have cheap policies, some have great discount options and some have excellent customer service. To find the best car insurance company for your particular needs, review our round up of best car insurance companies and get quotes from a small selection to compare pricing and policy options.

What is a two-party insurance check?

A two-party check has two people or entities named as the owners of the check. Insurance companies will often write the check out to two parties to ensure the check is used for what it was intended for.

Written by
Cynthia Paez Bowman
Personal Finance Contributor
Cynthia Paez Bowman is a finance, real estate and international business journalist. Besides Bankrate.com, her work has been featured in Business Jet Traveler, MSN, CheatSheet.com, Freshome.com and SimpleDollar.com. She owns and operates a small digital marketing and public relations firm that works with select startups and women-owned businesses to provide growth and visibility. Cynthia splits her time between Los Angeles, CA and San Sebastian, Spain. She travels to Africa and the Middle East regularly to consult with women’s NGOs about small business development.