Accidents and Injury Claim Settlements: FAQ

If you have been injured in an accident, you'll probably wind up settling your claim. Here are key questions to consider.

This page should serve as a starting point for anyone who's been injured and looking to learn about their rights to compensation. You'll find the most common questions, answers, and links to learn more.

Questions on This Page

Why should I settle my claim? Shouldn't I file a personal injury lawsuit?
How does the insurance decide to offer a settlement?
Should I trust a settlement calculator I find online?
What are "damages"? Which should be included in my settlement?
Should I get money for "pain and suffering" in my settlement?
Are my medical bills paid in an injury settlement?
Is there a minimum personal injury settlement amount?
Can I reject a settlement offer?
How is my lawyer paid?
Can I get a lawyer to accept a lower percentage of my settlement?
How do I collect my personal injury settlement?
Will I need to pay taxes on my settlement money?

Why should I settle my claim? Shouldn't I file a personal injury lawsuit?

After a car accident, slip & fall (premises liability) accident, or other type of personal injury case, you have the legal right to pursue compensation for your injuries and losses through the court system. As a practical matter though, there is usually an insurance policy in place designed to cover your losses. The insurance provider will usually prefer to pay you a settlement amount in return for your agreement not to pursue a lawsuit in court. It saves them the costs of defending the case in court. It's also usually beneficial to you, the injured party, because you don't have to wait for the court system to resolve your case, which can take many months or even years. Additionally, if you opt to take your case to trial – which you can at any time before accepting a settlement – you run the risk of getting nothing if you lose. Settlement is a compromise between you and the person liable for your "damages".

See: Advantages of Settling Your Injury Lawsuit Out of Court

How does the insurance decide to offer a settlement?

When you're injured, an insurance policy almost always comes into play, especially in the context of an accident where someone else may be at fault, whether a slip and fall, a car accident, or any other kind of mishap.

So, you might file a claim under your own insurance coverage (and your insurer might turn around and seek reimbursement from the insurance carrier of the person who was at fault), or you might file a third-party claim directly with the insurance company of the at-fault party.

In either case, for an insurance company, handling a claim is all about doing two things: minimizing costs and managing risk. The insurer will do everything it can to resolve the claim before it gets to court -- meaning reach a settlement agreement in which you receive a sum of money and the insurer and/or the defendant are released from any further liability in connection with your injuries.

An insurer is not going to let a personal injury case go to trial, where it can be put in the hands of an unpredictable jury, one that could just as easily award the plaintiff hundreds of thousands of dollars as it could absolve the defendant (and the insurer) of any liability.

See: How the Insurance Adjuster Determines a Settlement Offer

Should I trust a settlement calculator I find online?

You can get a ballpark estimate of your compensable damages by plugging a few key numbers into a damages calculator, and come away with a rough idea of the amount of compensation you might expect to receive.

In order to get the best estimate from any damages formula, you'll need to first get a sense of the universe of your damages.

Get all your claim-related documents together -- medical bills, pay stubs, records of time missed at work, property damage estimates, and anything else that will give you a strong (though not necessarily definitive) sense of your losses so far). This will give you an idea of your "actual" or out-of-pocket damages.

But what about compensation for pain and suffering, emotional distress and other damages? Some insurance companies use a multiplier to calculate these "general damages."

That means multiplying your actual damages by a number between 1.5 and 5. This number will be higher or lower based on factors like the seriousness of your injuries, your prospects for a complete recovery, the clarity of who was at fault for the accident, and the impact that your injuries have had on your day-to-day life.

Remember that resolution of any injury claim usually turns on far too many variables -- including the art and skill of successful negotiation -- for you to reasonably rely on numbers that have been crunched on a website.

Try our calculator out: Personal Injury Damages Calculator

What are "damages"? Which should be included in my settlement?

In personal injury parlance, the different kinds of compensation you can receive are divided into two main groups: general damages and special damages. General damages are also sometimes called "non-economic" damages, and special damages may be referred to as "economic."

Basically, general damages are the kinds of harm and losses that stem from the underlying accident or injury, but are not easily quantified and can be more subjective. This includes compensation for any pain and suffering, loss of enjoyment of life, lost companionship, disfigurement, and similar harm caused by the accident and resulting medical treatment.

Special damages are losses that are easy (or easier) to quantify (put a dollar figure on, in other words). This includes compensation for medical treatment, lost wages, lost income opportunity, property damage, and other economic losses resulting from the accident, medical treatment, and any resulting disability or limitation.

See: How to Negotiate a Personal Injury Settlement

Should I get money for "pain and suffering" in my settlement?

If you were injured in an accident, and you were not at fault – or at least, not "mostly" at fault – you should receive some amount of money for your pain and the impact the injury has had on your daily life. In accidents with minor, short-term injuries, it may be a small "token" amount. When injuries are more serious, painful and/or long-lasting, the settlement of the pain and suffering portion of your claim increases sharply.

See: Two Ways to Calculate a Pain and Suffering Settlement

Are my medical bills paid in an injury settlement?

Yes, payment (or reimbursement for payment) of medical bills will be a component of any settlement that is reached in an injury-related insurance claim or lawsuit. The plaintiff/claimant will be compensated for all medical treatment necessitated by the accident. That includes reimbursement for medical bills already paid, and a plan for payment of all future medical treatment that will be necessary.

One thing to be aware of when it comes to getting compensation for medical bills that have already been paid: Your health insurance provider may have a lien on part of your settlement, if your provider already paid some or all of the bills that you later get compensated for.

See: Who Will Pay For Your Medical Bills After an Accident?

Is there a minimum personal injury settlement amount?

No, there is no minimum or maximum amount when it comes to injury settlements. Every case is different in terms of strengths and weaknesses, and what is at stake. The amount of a settlement in a personal injury case depends on a whole host of factors, including:

  • the nature and extent of the plaintiff/claimant's injuries, including "pain and suffering" and the long-term impact of the injuries
  • the clarity of who was at fault for the underlying accident, and
  • the willingness of one side or the other to play "hardball" and let the case go to court if need be.

See: How Much Should You Settle For?

Can I reject a settlement offer?

Absolutely. If you've filed an injury claim with an insurance company, or brought a personal injury lawsuit against the person who caused your injuries, you're free to reject any settlement offer you receive.

It's true that most injury cases settle before going to trial, and a large number of claims even get resolved before a personal injury lawsuit is filed. But there are a number of valid reasons to reject a settlement offer and take the case to court. Maybe you and the other side are too far apart on key issues like who was at fault for the accident, or the extent of your injuries. Maybe you just want your "day in court."

Having said that, it's wise to take a reasonable approach to any settlement offer, and to formulate a strategic response. Talk to your attorney about the best course of action. Most often, when an injured person rejects a settlement offer, settlement negotiations continue. The injured person (called the "claimant" or "plaintiff") typically makes a counter-offer, usually as part of a methodical and professional demand letter.

The demand letter is your chance to tell your side of the story. How did the accident happen? What evidence points to the defendant bearing the blame for what happened (police reports, witnesses, etc.)? How badly were you injured? What has been the course of your medical treatment so far, and what is the prognosis for future treatment?

In your demand letter, you'll present detailed evidence that will show why the other side's initial settlement offer is too low, and you'll end your letter with your own "demand"-- a dollar amount you'd be willing to accept to settle the case.

See: Writing Your Personal Injury Demand Letter

See: Responding to the First Personal Injury Settlement Offer

How is my lawyer paid?

In most personal injury cases, if you decide to retain a lawyer to handle your case, he or she will represent you under a contingency fee. This means that you do not pay anything "up front", and your lawyer will only be paid if your case reaches a favorable solution for you -- either through an agreed-upon settlement or after a civil court trial.

Then, your lawyer will collect a percentage that was agreed-upon in the initial fee agreement you signed. Typically, this percentage is around 33 percent of the settlement amount, but many fee agreements spell out that the percentage is lower if the case resolves before a lawsuit is filed, then the lawyer's cut increases gradually the further along the case progresses.

See: Lawyers' Fees in Your Personal Injury Case

Can I get a lawyer to accept a lower percentage of my settlement?

Attorney's fees are always negotiable. As you interview attorneys to handle your injury case, you should bring up the fee arrangement. Most lawyers will immediately say something like "one-third is the industry standard," and that's true. But just like there is no "average settlement", there is no "average lawyer's fee". If you've got an excellent case, liability is clear, the damages are significant, and there's adequate insurance coverage, you should be able to negotiate a favorable fee agreement. On the other hand, if your case involves contention about liability or the cause of your injury, a lawyer will probably not accept a lower fee, because there is too much risk of losing.

See: Negotiating Reduced Personal Injury Lawyer Fees

How do I collect my personal injury settlement?

It depends on the specifics of your case. If the defendant had an insurance policy that kicked in to cover the accident, chances are that you (or your attorney) have been negotiating with the insurance carrier; either before you ever filed a personal injury lawsuit, or while the lawsuit is ongoing. In that case, the insurance company will usually just write a check for the agreed-upon amount and you will sign a release that absolves the insurer and the defendant of any further liability in connection with the incident that gave rise to your claim.

If you sued the defendant directly and there is no insurance coverage in play in the case, things can get more complicated, especially when your case has gone all the way to trial and you've received a judgment in your favor (which includes an order that the defendant pay you a certain amount in damages). Getting a judgment is one thing, but getting your money is another, and it will be a challenge if the defendant does not have much in the way of assets.

See: Collecting Your Injury Settlement Money or Judgement

Will I need to pay taxes on my settlement money?

The IRS has provided some guidance on this issue, but it all comes down to what the settlement covers. If the settlement is intended to cover "physical injuries or physical sickness," then the award will not be taxable as income, as long as you didn't previously claim any "medical expense" deductions related to that same injury or illness.

Assuming you didn't claim such a deduction, you don't need to claim any part of the settlement as income for federal income tax purposes. But if you did claim a deduction involving the same injury or illness that gave rise to the settlement, then you'll most likely need to report the settlement as "Other Income" to the IRS.

There are a few more quirky rules when it comes to settlements and whether they're taxable:

  • Any portion of your settlement that is meant as an interest payment is taxable.
  • Any portion of the settlement that is meant to compensate you for pain and suffering -- above and beyond any dollar amount meant to cover your actual medical expenses -- will be taxable.
  • Any punitive damages included in the settlement will be taxable.

See: Tax Liability on a Personal Injury Settlement

Learn More

See the following sections for lots more information:

Settle Your Personal Injury Claim - The ins and outs of the settlement negotiation process.

Damages and Compensation - How much should you expect in a settlement?

Using a Lawyer - Find out how much a lawyer would cost, and when it's worth it.

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