As a property owner, you purchased insurance to help protect you from financial loss in the event that your home, vehicle, boat or other important item is damaged. But after your insurance company gives you a check to cover the damage, do you need to spend it on the insured item? And if there’s money left over, who gets to keep it? While there are some circumstances when you can keep the money from an insurance claim, it’s important to be aware of when keeping a payout constitutes fraud.
When Do Consumers Receive an Insurance Claim Check?
For most types of insurance, you will first begin by filing a claim with the company providing the coverage. After the insurer approves your claim, it will issue you a check, which you can then use to repair the damage according to your policy and the insured item. In some cases, your insurance company might send a damage professional called an adjuster to assess the damage and estimate the amount of money you’ll need for a repair before approval.
When you receive your check, you must use the funds to repair the damaged item according to your policy. In other words, you cannot file a claim for a broken window with your homeowners insurance provider, receive a payout and use the money for something else like a vacation or credit card payment unless it’s related to the claim. However, if there is money left over after you use the money according to the approved claim, it is yours to keep so long as the insurance company does not ask for it back.
The following types of insurance will usually provide you with a cash payout directly. Here’s when you can use the money for things other than the subject of your claim.
When you file a homeowners insurance claim, your insurance company will provide you with a check equal to the projected cost of repairing or restoring the subject of your claim. But you may not receive the money directly depending on the subject of your claim.
Homeowners insurance includes multiple components — like coverage for your personal property and the structure of your home. If you own your home outright, you will likely receive a check directly from your insurer no matter what your claim. But if you have a mortgage loan and you’re filing a claim related to damage to your dwelling (or other structure on your property like a tool shed or fence), your lender may receive the check instead. If this is the case, your insurance company will typically place the money into an escrow account to pay the contractor when the job is finished.
If you have a significant claim, your insurance company may request to tour your property after repairs to make sure that the check was used for the covered subject. So long as you did not lie on your claim or inflate the cost of repairs, any leftover money is yours to keep so long as your insurer doesn’t request it back.
Auto or Boat Claim
Similar to your home, your insurance provider will usually provide you with a check directly if you own your car or boat in full. It is not considered fraud if you use the money for a purpose besides fixing your vehicle. You have the option to cash out and use the money toward a replacement vehicle if you prefer so long as you did not lie during the claims process and you own the vehicle in full.
If you are leasing your boat or car, you are not fully in control of what happens to the money following your claim. Your insurer may pay the check to your lender, who will then transfer the money to an escrow account to pay your repair professional. If you receive a check directly and do not repair the damage, your lien holder will take issue with the condition of your vehicle should you default on your loan.
Excess or Umbrella Claim
An umbrella insurance policy is a policy extension you can purchase that extends your coverage limits to include excess liability coverage. For example, imagine that you have a boat insurance policy with a coverage limit of $100,000 and an umbrella insurance policy that extends collision damage to $1 million. In the event of major damage that exceeds your boat insurance policy (more than $100,000) your umbrella insurance policy would cover damage up to $1 million.
When you have an umbrella insurance policy, you are only covered for excess damage up to the actual cost of your repairs. It will only cover excess damage beyond your policy limit. For example, if you have a boating accident that results in $110,000 in damage, your boat insurance policy would pay $100,000, and your umbrella insurance would cover the remaining $10,000. Because of this, it is unlikely that you will have excess money after your umbrella payout. But as long as you use the money toward the approved repairs or replacements and you did not commit fraud on your claim form, the excess money paid to you is yours.
Unlike other types of insurance, there are no limitations on how you can use the money from a life insurance payout. From paying funeral expenses and covering credit card debt to investing, you can use life insurance money in any way you choose. The only exception is if the policyholder on the insurance specifies that the money must be used in a specific way in accordance with their will such as putting life insurance settlement into a trust for a minor child until they are an adult.
When Do Consumers Not Receive an Insurance Claim Check?
Not every type of insurance policy pays you a claim check directly. The following insurance types will pay your care provider instead of providing you with an insurance check to foot the bill later.
Health insurance is unique because it is one of the only types of insurance that does not usually require you to cover the cost of your care upfront. Instead, medical service providers bill your insurance company, which then handles its portion of your payment. Copayments on health insurance policies are usually low compared to overall medical costs and may be due at the time of service. If you have an insurance policy with a deductible, you will usually receive a bill later from your insurance provider according to your policy’s cost-sharing terms.
Some health insurance policies include coverage for dental insurance. If your dental insurance is part of your health insurance, your insurer will likely follow the same procedure as your health insurance when billing care providers. This means that you will not receive a check directly.
If you have a private dental insurance policy that’s separate from your health insurance, your insurer may provide you with a reimbursement directly. However, in order to claim reimbursement, you must submit proof of the dental work you received and an invoice that shows how much you paid for treatment. If this is the case, your insurer will pay out only as much as is indicated on your policy, and you will not have extra money to keep.
Like dental insurance, your health insurance may or may not include a vision insurance component. Also like dental insurance, if you receive a check directly, it will be for the portion of your bill laid out in your contract. You will not receive excess funds from your insurer.
Who Receives The Claim Check?
If you do not own the item that’s insured, you may not receive a settlement check when you make a claim. For example, some mortgage lenders specify that they must be the payee on your policy as a term of your loan. This is typically the case for any asset that has a lien on it — like a car that you bought using an active auto loan.
If a lender receives the funds from your insurance claim, it will typically transfer the money to an escrow account. An escrow account is a third-party account where funds are held until they need to be used. Your lender will use the funds from the insurance to cover your repairs or reimburse you after you provide proof that you’ve made the repairs or replacements that were covered under your insurance. Because you are not the payee in these circumstances, excess funds belong to the lender, and you will not be entitled to anything left over.
Frequently Asked Questions
Where does insurance claim money go?
Insurance claim money goes to the payee on the insurance contract. If you own the underlying asset that is insured and you purchased the insurance policy, you’ll receive a check from your insurer with most types of coverage. If you do not own the underlying asset, claim money usually goes to the lien holder. Some types of insurance (like health and dental insurance) may pay your service provider directly.
Can insurance companies ask for money back?
Insurance companies can ask for excess funds back after a claim if there is a term in your policy that specifies they can. These clauses are not common with most types of insurance, and you can usually keep any extra money after you repair the covered item.
About Sarah Horvath
Sarah is an expert in the insurance, investing for retirement and cryptocurrency space.