I would not be so quick to say yes, unless you want to get sued. Unless the current loan is in default, what gives you the right to keep the insurance proceeds to pay off the loan. The bank could ensure that the required repairs are made to the structure to protect collateral values, but without a default, the bank is not automatically entitled to the proceeds. If my house floods and I get a check for $100,000 and my loan is current and the bank takes the check to pay off the loan and I am left with a ruined house and no funds to repair it, I can guarantee you that action is going to cost the bank a lot more than $100,000 when I get done in court.
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