What Happens If I Don’t Fix My Car With Insurance Money?
Received insurance money for car damage but didn't repair it? Understand the long-term impacts on your vehicle, finances, and coverage.
Many car owners receive an insurance payout after their vehicle sustains damage. A common question arises: what happens if this money is not used to fix the car? While keeping the funds might seem straightforward, not doing so can lead to complex financial, legal, and safety implications that policyholders should consider. Understanding these potential consequences is important.
How Your Insurance Payout is Determined
Insurance payouts for vehicle damage are based on an assessment and policy terms. Insurers determine if damage is a “partial loss” (repairable) or a “total loss.” A total loss occurs when repair cost exceeds a percentage of the vehicle’s value, often 75-80% of its actual cash value, or if damage is too severe for safe repair.
Payouts are calculated based on the vehicle’s Actual Cash Value (ACV). ACV represents the car’s market value immediately before the damage, accounting for depreciation due to age, mileage, and overall condition. This differs from replacement cost. Insurers consider factors like mileage, options, and physical condition when determining ACV.
Once the claim is approved, payment methods vary. Some insurers issue a check directly to the policyholder. If the vehicle is financed or leased, the payout might be issued jointly to the policyholder and the lienholder, or directly to the repair shop. For total losses on financed vehicles, the insurer typically pays the lender first to cover the remaining loan balance.
Impact on Future Insurance Coverage
Opting not to repair your vehicle after receiving an insurance payout can have consequences for future insurance coverage. Insurers generally do not cover pre-existing damage. If a subsequent incident causes further damage to the same unrepaired areas, the insurer may deny the new claim or deduct the cost of the existing, unrepaired damage from any payout. Their obligation is to cover new losses, not those already paid or pre-existing.
Leaving damage unrepaired can also influence policy renewal and premiums. Insurers may view a vehicle with unrepaired damage as a higher risk. This increased risk could lead to higher premiums at renewal, or the insurer might choose not to renew your policy. Some states may require a physical inspection before providing comprehensive and collision coverage for vehicles with prior damage, limiting coverage options.
If unrepaired damage contributes to a new accident, your insurance provider might deny the claim, citing pre-existing conditions. For example, if a neglected issue like a faulty brake system from unrepaired damage contributes to a subsequent accident, you could face increased liability. This could affect your insurance rates or lead to legal consequences.
Financial and Ownership Considerations
Not repairing your car with insurance money carries substantial financial and ownership risks. One significant factor is accelerated vehicle depreciation. Even if fully repaired, a car involved in an accident often loses market value, a concept known as diminished value. This loss is typically 10% to 30% of the car’s value, and can be as high as 50% for severe damage. Leaving damage unrepaired further exacerbates this, making the vehicle much harder to sell or trade in and reducing its market appeal.
If your vehicle is financed or leased, not repairing the damage could breach your loan or lease agreement. These contracts often contain clauses requiring the borrower or lessee to maintain the vehicle in good condition. Failing to repair damage could lead to penalties, including the lender demanding immediate repayment of the outstanding balance, or even repossession of the vehicle.
In cases where damage is extensive enough for the insurer to declare it a total loss, but you choose to retain the vehicle, it may be issued a salvage title. A salvage title indicates the vehicle has sustained significant damage and the cost of repair exceeds its value. While it might be possible to repair and re-title such a vehicle as “rebuilt,” a branded title (including salvage or rebuilt) significantly impacts its resale value, making it difficult to obtain financing or even future insurance coverage.
Driving a Damaged Vehicle
Operating a vehicle with unrepaired damage presents practical and legal concerns. The most pressing issue is safety. Even seemingly minor cosmetic damage can mask underlying structural, mechanical, or safety system issues that compromise the vehicle’s integrity. Components like airbags, crumple zones, steering, or suspension might be affected, increasing the risk of injury in a subsequent incident.
Many states have laws requiring vehicles to be roadworthy and pass periodic safety inspections. An unrepaired damaged vehicle might fail these inspections, rendering it illegal to drive and preventing registration renewal. Law enforcement officers can issue citations or fines for operating a vehicle that poses a danger to others on the road, and in some cases, mandate repairs or suspend driving privileges.
Driving a damaged vehicle can increase your liability in future accidents. If the unrepaired damage contributes to a subsequent collision, you could be held partially or entirely responsible for the resulting injuries and damages. For example, if a bent frame or faulty steering from prior damage leads to loss of control, you might face legal and financial repercussions that could have been avoided with timely repairs.