Injured people and their attorneys frequently ask insurance companies to settle claims and lawsuits arising from car accidents. The insurance companies employ claims adjusters to review the claims and determine what settlement offers should be made. Settlement offers may include amounts for pain and suffering, lost wages and medical expenses. Generally, insurers offer lump sum payments but in certain situations alternatives are explored.
An insurance company generally pays a personal injury victim in a lump sum once the claimant has finished medical treatment and submits a demand for settlement. The insurance company wants to fully settle the claim and close its file, so claims are not paid on a piecemeal basis. Once the parties agree on a settlement amount, the insurance adjuster or defense attorney will send settlement papers to the plaintiff. The plaintiff must sign these papers, typically including a release of claims, before receiving the settlement check.
Advantages for Claimant
Many personal injury victims like lump sum settlements because they get the entire settlement immediately, less attorney fees and payment of any medical liens. Sophisticated claimants confident in their ability to manage settlement proceeds may prefer the freedom to invest the money as they wish. They may feel they can beat the rate of return that a structured settlement would provide.
Some cases are resolved using structured settlements. In these situations, the insurance company agrees to pay an upfront settlement amount in addition to a series of payments to the plaintiff over a certain period of time. The insurer will either purchase an annuity from a life insurance company to fund these payments or will pay a third party to purchase the annuity. The terms of the agreement will determine the size and duration of payments to the victim.
Advantages for Claimant
Some claimants may not be confident in their ability to manage their settlement money. Using a structured settlement approach can help protect a claimant from making unwise financial decisions. Annuity payments in a structured settlement may pay a higher interest rate when compared with other conservative investment options, especially considering the tax-free nature of personal injury annuity payments. Structured settlements also can benefit some accident victims who may be eligible for Medicare or Medicaid.
E.S. Martin is an attorney who has worked in civil litigation for more than eight years. He focuses his work in insurance, personal injury, subrogation and risk management.