Yes. It is entirely legal to keep insurance money instead of doing the work that was prescribed. You just cannot say that you completed work that was not completed, nor will you be able to recover the depreciation if the work was not done. When you decide not to use the money for its intended purposes, you should understand, your property will almost certainly not be covered again against future losses until you can prove that the work was done.
Many people think that their insurance company just hands them a lump sum to go shopping with and that they can keep the difference. This is patently false. Your insurance company does not set you up to profit from your loss.
If you are able to get the work done at a lower cost, then your insurance company does not owe you any more than what you paid. And the only way to get a cheaper price than what the job costs is to not perform certain tasks that need to be performed. Your insurance company is not in the business of paying anything beyond what the claim calls for. In fact, many times, they don’t even pay what the job costs to begin with, causing us to turn in supplements. Not performing certain tasks could lead to lower coverage payout, potential fines for submitting false documents, and even void manufacturer warranties.
It is ALWAYS most advisable to simply perform all of the tasks that your insurance carrier prescribes from their adjustment of the damages.