If you've ever actually read your policy, you know auto insurance can be very complicated, especially when it comes to filing claims and receiving an insurance claim check. There's really no way around it, though. It's complicated by nature. One of those details has to do with who actually receives payment when a policyholder makes a claim.
- If the other driver is at fault in an accident, their insurance company pays you for damages if you own your car outright.
- If you have a car loan, the payment is made to both you and the lienholder, who also signs the check to ensure you use the money to pay for repairs.
- If your car is totaled, your insurance pays you the car's cash value minus any deductible, and you forward the check to your lender to pay your loan.
Who Is Paying the Claim?
There are a number of basic factors involved in determining who gets the money. The first has to do with who is actually paying for the damages. This almost always depends on who caused the accident, unless you live in a no-fault state like Michigan. If the insured (that's you) is at fault, then your insurance company will be footing the repair bill.
If it's the other driver's fault, the other driver's insurer is on the hook for the expenses. This is known as a "third-party" claim. That is, you, the damaged party, are seeking payment for your damages from the at-fault driver and their insurance company—two parties with whom you have no contractual agreement; hence the term "third party."
Since there's no contractual agreement, the at-fault driver's insurance company has no obligation to pay anyone other than you, so the settlement check should be made out in your name alone, even if there's a lien on your car.
When There's a Loan on Your Car
Things can get a little complicated if there's a loan on your car. Your insurer knows there is a loan on your vehicle and maintains information on that loan. Therefore, when a policyholder makes a claim for damages, the insurance company normally will make the claim check out to both the insured and the lien holder. Since the lien holder continues to have an interest in the insured vehicle, it wants to be sure the claim payment actually is used on repairs and not on a policy holder's new ultra-HD TV or vacation in the Bahamas.
So, when the insured receives the claim check from the insurance company, they will need to get the lienholder to sign the check in order to cash it and pay the repair shop. If your vehicle is a total loss, the insurance company will write the check for the vehicle's actual cash value (ACV) minus your deductible, and send it to you. You then will sign the check and forward it to the lender to pay off the loan.
When You Own Your Car Outright
Of course, if you own your car outright and there is no loan involved, the insurance company will write the check directly to you. But there is one very important thing to keep in mind. If you decide not to use the proceeds from your claim payment to fix your vehicle, you are likely to run into some trouble with your insurance company if you get into another accident.
That's because they will not pay for any pre-existing damages. In other words, the insurer will make a determination as to whether damages to your vehicle were caused by the most recent accident or were there before. You can be sure that if there is any uncertainty, they will attribute the damage to the prior accident and refuse to pay. Who can blame them? They paid for them once already. So, if you are thinking about not fixing your vehicle when you get your claim check, you might want to reconsider.