Accidents and Injury Claim Settlements: FAQ

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

Updated by , Attorney · UC Law San Francisco

This page is a starting point for anyone who's been injured in an accident. You'll find answers to common questions about how to get compensation for your losses and links to more in-depth articles on topics like damages, settlements, and how personal injury lawyers get paid.

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

If you've been injured by someone else's carelessness or intentional misconduct—for example, in a car accident, slip and fall, or assault—you have the legal right to pursue compensation for your injuries through the court system. As a practical matter though, the person or business that harmed you often has an insurance policy in place designed to cover your losses. And most insurance companies prefer to settle claims rather than defend against lawsuits in court.

Settlements tend to be faster, less risky, and less expensive than court battles. Settlements are a sure thing, while trials are unpredictable for both parties. If you go to trial and lose, you get nothing. A settlement is a compromise between you and the person liable for your damages.

Learn more: Advantages of Settling Your Injury Lawsuit Out of Court.

How does an insurance company decide to offer a settlement?

When you're injured in an accident that wasn't your fault, an insurance policy often comes into play. You might be able to file a claim under your own insurance coverage or you might file a third-party claim directly with the insurance company of the at-fault party.

Either way, the insurance company handling the claim is all about two things: minimizing costs and managing risk. The insurer will typically do everything it can to settle the claim before it gets to court and avoid putting the case in the hands of an unpredictable jury.

Learn more: 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 damages by plugging a few key numbers into a settlement calculator. To get the best estimate from a calculator, you'll need to understand 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 sense of your losses so far. These expenses are your "special damages" or out-of-pocket damages.

You are also also entitled to compensation for pain and suffering, emotional distress, and other less tangible damages. Some insurance companies use a multiplier to calculate these "general damages."

An insurance adjuster using the multiplier method will add up your medical costs related to the accident and multiply the total by a number between 1.5 and 5 (called the "multiplier"). The multiplier 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 of your injuries on your day-to-day life.

Remember that the resolution of any injury claim usually turns on far too many variables—including the skill of the person negotiating the settlement—for you to reasonably rely on numbers that have been crunched on a website, but you'll get an idea of the potential value of your claim.

Try our calculator out: Personal Injury Damages Calculator.

What are "damages"?

In personal injury lingo, 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" damages.

General damages are the kinds of harm and losses that stem from the accident and 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 easier to put a dollar figure amount on, including medical expenses, lost income, and property damage.

Learn more: Valuing Your Personal Injury Damages and Compensation.

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

If you've been injured in an accident that wasn't entirely your fault, you should receive some amount of money for your pain and the impact the injury has had on your daily life in most states. In accidents with minor, short-term injuries, it may be a small token amount. If your injuries are serious or long-lasting the settlement value of the pain and suffering portion of your claim will increase sharply.

Learn more: Two Ways to Calculate a Pain and Suffering Settlement.

Are my medical bills paid in an injury settlement?

Yes, payment of your medical bills—past and future—will be part of any personal injury-related settlement.

But be aware that your health insurance provider may have a medical lien on part of your settlement. If your insurance provider already paid some or all of the bills that you later get compensated for in a settlement, you'll have to pay your insurance provider back.

Learn more: 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. The amount of a settlement in a personal injury case depends on many factors, including:

  • the nature and extent of your 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 roll the dice on going to court.

Learn more: 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.

Most injury cases settle before trial. In fact, most cases are resolved before a personal injury lawsuit is even filed. But there are 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 and strategic approach to settlement negotiations. Talk to your attorney about the best course of action. Most often, you'll reject a settlement offer with a counteroffer, and negotiations continue. But the insurance company or at-fault party can end negotiations at any point and force you to go to court to win compensation.

The best way to start settlement negotiations is with a demand letter. A demand letter is your chance to tell your side of the story. How did the accident happen? Why is the other person or entity to blame for the accident? What evidence—police reports, witness statements, photographs—supports your version of events? What are your injuries and losses?

Be sure to end your letter with a specific settlement demand—a dollar amount you'd be willing to accept to settle your claim.

Learn more: Sample Demand Letters for Personal Injury Claims and Responding to the First Personal Injury Settlement Offer.

How is my lawyer paid?

Most personal injury lawyers handle cases on a contingency fee basis, meaning you won't have to pay fees upfront. Instead, your lawyer gets paid only if you do—either through a settlement or court award.

Most lawyers take an agreed-upon percentage of your compensation, typically 33%. Your fee agreements should spell out the exact percentage. Win or lose, you might have to pay court costs and other expenses like expert witness fees, filing fees, and court reporter fees.

Learn more: Lawyers' Fees in Your Personal Injury Case.

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

An attorney's contingency fee percentage isn't set in stone. Most lawyers will ask for 33% (one-third) of your settlement, but you can negotiate. If you've got an excellent case—liability is clear, your damages are significant, and there's adequate insurance coverage—you might be able to negotiate a more favorable fee agreement. On the other hand, if your case requires a lot of work and liability isn't clear-cut, a lawyer probably won't accept a lower fee.

Learn more: Negotiating Reduced Personal Injury Lawyer Fees.

How do I collect my personal injury settlement?

When you settle an insurance claim, the insurance company will usually write a check or directly deposit the agreed-upon amount in exchange for your promise not to sue the insurer or the insured in connection with the accident that led to your claim.

If you sued the person who harmed you directly and there is no insurance coverage in play, collecting a settlement or judgment can be more complicated. Getting a judgment is one thing, but getting your money is another, and it will be a challenge if the defendant doesn't have much in the way of assets.

Learn more: 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 comes down to what the settlement covers. If the settlement covers "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, then you'll most likely need to report the settlement as "Other Income" to the IRS.

There are portions of your settlement—often sizeable amounts—that are 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—is taxable.
  • Any portion of your settlement that is meant as an interest payment is taxable.
  • Any punitive damages included in the settlement are taxable.

If you have questions about what part of your settlement is taxable, talk to a tax professional.

Learn more: Tax Liability on a Personal Injury Settlement

What should I do if I have more questions?

If you have more questions about the ins and outs of settlement negotiations or want to know more about damages and compensation, talk to a lawyer. A lawyer can answer your questions and help you decide what the best path forward is in your case.

Learn more: Hiring a Personal Injury Lawyer.

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