What to Do With Leftover Money From a Home Insurance Claim

You may be able to keep excess money as long as you’re not violating your provider’s rules or committing insurance fraud. You can also put the money towards other areas of repairing your home.

When paying out a claim, insurers try to avoid overpaying by reimbursing policyholders in installments. They generally pay a portion of a claim upfront to get repairs started and then fully compensate after they verify work has been completed.

Additionally, an adjuster from the insurance company should visit the property and inspect all damage. They will calculate losses, and there shouldn’t be much wiggle room in their calculation that leaves you with notable excess funds. 

But, if you find yourself in a situation where you have leftover money from an insurance claim, you may be able to keep it. Repairs can come in under budget. If your insurance company inspects and approves the repairs and doesn’t ask for excess money back, you should be good to go. What happens if you don’t use insurance money for repairs will vary on a case-by-case basis.

It’s rarely this simple, though. If homeowners commonly had leftover money from claims, people would often file claims just for some cash. You can’t try to procure excess money from your insurer by lying about property damage, repair amounts, or other aspects of a claim. This is insurance fraud, which is illegal. It can carry severe penalties and potentially jail time. You’d also get your policy canceled, and you’d potentially get blacklisted from several carriers.

Your insurance company or mortgage lender will need to approve all repairs in one way or another to avoid insurance fraud. The checks they have in place often prevent leftover claim money. 

Most homeowners have mortgages on their houses. When you have a mortgage, your lender is typically named as a loss payee on the policy. Since they have a majority investment in your home, your insurer will likely make claims checks out to them. They will handle the claims money and put it into an escrow account to disperse as repairs are completed. You’ll need to work with them to hire contractors and more. 

So, you may not have the only say in what to do with potential excess money. Your mortgage lender may want to add some excess to upgrades or renovations if applicable.

Additionally, in some cases, your insurer will pay contractors directly. You’ll likely need to authorize this beforehand, so always be clear about what you’re signing and ask questions if you’re unsure. Be wary of who your money is going to. Some contractors don’t have your best interest in mind and may hold you accountable for certain expenses or do crummy work, which could jeopardize any leftover claim money you may have. 

While your lender often handles money for repairs, you should get a check for damaged personal belongings. Even with replacement cost coverage, your provider will likely pay you the item’s actual cash value first. Then, after you replace the item, your provider can reimburse you for the full replacement cost. 

With this process in place for personal property, you likely won’t have excess money left over. You need to show receipts or other documentation to prove that you bought the item before getting reimbursed for its cost. With the receipt, your insurer usually knows exactly how much to give you for it. 

You can choose not to buy an item with the initial ACV payment you receive, but then you’ll lose out on the recoverable depreciation. Buying a cheaper replacement item than anticipated also wouldn’t entitle you to any excess payout.

For a simplified example, let’s say your $1,000 television was stolen. Your provider initially gives you a $250 ACV check. You buy an $800 television instead of another $1,000 one. Your insurer would likely just give you $550 to add up to $800 because that’s what will be on the receipt. You wouldn’t get an extra $200 because you initially had a $1,000 television and chose not to get another one. If you wanted to recover the depreciation of $1,000, you’d need to buy another television worth $1,000.

This simplified example also doesn’t account for your home insurance deductible, which further reduces claims payouts and makes having excess money after a personal property claim even less likely.

You can likely use the insurance money for something else if your insurance company or lender allows it. Again, regarding home insurance claims, it may not be easy since you’ve got to work with your lender to disburse your payout if you have a mortgage.

If your provider made your claims payment out totally to you, you could use it for something else as long as it’s not fraudulent. But, think of the consequences of doing so. If you filed a legitimate claim, you have some sort of damage that needs repairing. If you used insurance money for something else, you’d obviously be choosing to neglect that damage and live with it. 

You can’t file a claim for the same damage twice, either, so you wouldn’t be able to seek coverage for it in the future. And, if this damage causes additional issues down the line, your provider may exclude those from coverage, considering you neglected it initially. Additionally, depending on the damage to your home or property, your city or homeowners association may require you to fix your house to follow their rules or guidelines, so you might have to deal with them, too.

You’ll need your insurance company’s approval before keeping the claim money and doing the repairs yourself. But, it’s not always allowed, and you may not save money doing this in the long term.

If you have a mortgage lender, they may not want you to do the repairs yourself. Since they’ll have control of much of the claims payout, they may prefer to work with licensed and insured contractors and builders only, especially if it’s a major repair. Your insurer will also want additional oversight on a serious claim.

If your insurer and lender allow you to make the repairs yourself, you want to be sure that you do it right. It’s possible that your insurer won’t cover improper or faulty repairs that you make if they generate another claim later on. And, if the project is large enough, you may need to get permits from your city beforehand. Your repairs will still need to meet certain inspection requirements from your insurer upon completion. 

Depending on the project’s scope, you’ll need to check with multiple parties. When all is said and done, it may just be easier to let someone else handle it.

If a potential repair is relatively minor or mostly cosmetic, you may not need to file a claim with your insurer beforehand at all. If the cost to fix it is lower than your deductible, your carrier won’t cover it. If it’s only slightly more, then weigh your options. It still may be easier to pay out of pocket and do the repair yourself rather than dealing with an insurance claim for a few hundred or a thousand dollars. Remember that home insurance claims may raise your premiums in the future.

In some cases, you may be able to keep the money and not rebuild in your current location, although your home will need to be paid off for this to be an option. If you have a lender, they will use the funds to rebuild to recoup their investment. And, your insurance company will pay out in installments as work progresses, so you won’t have one lump sum to potentially use, anyways.

If you own your home outright and don’t plan on rebuilding after a total loss, you may be able to keep the home insurance claim money and move. However, this is very unlikely since insurers may only pay actual cash value for several parts of your home if you don’t rebuild, leaving you with less money than your house was worth. Also, you may need to pay to clean up debris and cover other expenses before being done with your damaged property. 

Check with your agent or provider if you plan to keep home insurance claim money. Your policy will likely have certain rules and restrictions that you’ll need to navigate.