How Are Personal Injury Settlements Paid Out?

How Are Personal Injury Settlements Paid Out

You undoubtedly deserve compensation if you have been injured due to another person’s negligence. Aside from the physical and financial costs associated with medical care and time lost from work, victims may also face intangible losses due to mental trauma and property damage.

If you’ve been hurt in an accident, a settlement for personal injuries may be your best hope for financial stability while you heal. You can improve your chances of negotiating the best settlement possible by learning as much as you can about the process. Retaining the services of an experienced personal injury lawyer can also help ensure that you get the compensation you deserve.

How are personal injury settlements paid out?

The amount listed on the settlement check is rarely the final amount you’ll receive. Debts must be paid, and if you decide to retain legal representation, you’ll need to take some money out to cover their fees. Here’s a rundown of how personal injury settlements are paid out:

Indicate your consent by signing a release form

You should get a release form once the parties involved in the injury settlement agree on a final sum. The release should contain the terms of your agreement including your payout amount and other terms and conditions. Signing the release confirms your acceptance of the settlement.

More significantly, you agree not to sue the negligent party or their insurer for any additional damages arising from the accident.

Review the release with your personal injury lawyer before signing it. To avoid unexpected consequences, you should not sign anything about your personal injury case unless you have had it reviewed by an expert attorney.

Your attorney receives the settlement check

The insurance company will issue a check to you and your lawyer for the amount you have agreed. Once your attorney receives the funds, they will transfer them into the law firm’s bank account.

attorney receives personal injury settlement check

Your lawyer negotiates and pays off your debt

People who have been injured usually owe money to third parties like healthcare providers out of their settlement money. These debts, sometimes known as “liens,” are negotiable, and your attorney will work hard to lower the amount you owe.

Remember that negotiations with your doctors may involve a lot of back-and-forths that could lengthen your wait. When an agreement is reached, your attorney will disperse the monies to the lienholders.

Pay your legal fees

Next, your attorney will deduct the money they spent on your behalf from the settlement amount. Some examples of such expenditures are the costs associated with attending court, requesting medical records, making copies, and sending correspondence to the insurance provider.

After that, your lawyer will deduct their fee from what’s left. Personal injury lawyers often take cases on a contingency basis, where they are paid a certain proportion of any settlement. The fee agreement you signed when hiring your lawyer will likely detail the order of payment for each of these items.

Receive the final settlement check

After settling any outstanding liens, costs, and fees, you and your lawyer will meet to close the case. You will receive a settlement packet, including a copy of the release and receipts for the money they paid out. The next step is for you to examine and sign all necessary paperwork. After that, you’ll get paid.

What is the formula for personal injury settlements?

A settlement can be determined using the multiplier formula or the per diem method.

Multiplier method

Insurance companies frequently use the multiplier method to speculate on how much money a jury would award you in a personal injury trial. Similarly, lawyers often resort to this strategy when determining a client’s monetary damages.

Settlement = Economic damages + (economic damages x multiplier).

Your economic damages are quantifiable in monetary terms. The list includes

  • Medical bills
  • lost wages
  • lost earning capacity
  • property damage

Non-economic damages are difficult to put a price tag on. They include  physical pain, mental anguish, emotional distress, post-traumatic stress, diminished quality of life, etc.,

personal injury settlement formula

To calculate your non-economic damages, multiply your economic damages by a figure between 1 and 5. The extent of your injuries and how the accident altered your life will determine the multiplier. The average severity rating for an accident is 1.5. Serious incidents are given a larger total.

Per diem method

The per diem method provides compensation based on the number of calendar days you were unable to work due to your injuries. This daily rate is often determined by the value of your daily wages or earnings.

  • Non-economic damages = No of days suffered x daily earnings
  • Settlement amount = Economic damages +non economic damages

This is only the beginning of the many considerations determining the final settlement amount in a personal injury lawsuit. Before making any demands in a settlement, you should discuss your options with a personal injury lawyer. A personal injury lawyer can explain what a fair settlement for your situation would be.

How does the settlement process work?

Louisiana Civil Code article 3071 governs settlement agreements and specifies that disputes can be resolved amicably by a settlement.

In most cases, the wounded party will demand a certain amount of money, and the liable party or insurance company will counter with an offer to pay far less. If the at-fault party or their insurer offers to pay the injured party an amount the victim is ready to accept, a settlement is achieved.

The next step is to write the agreement and have both parties sign it before submitting it to the court. Then the insurance company carries out the agreement’s provisions, such as making payments.

Rejecting a settlement offer often leads to filing a lawsuit, or if litigation is already underway, the parties may opt to proceed to a jury trial.

What is a good settlement offer?

A good settlement offer will pay for all of your accident-related losses. These include:

  • Medical costs, including  probable future medical fees like physical therapy
  • Lost earning capacity due to any permanent injury that the accident will leave you with
  • All forms of lost income while you were recovering
  • Property damage
  • Emotional distress
  • Pain and suffering
  • Loss of consortium for your loved ones

Often, the insurance company’s initial settlement offer does not adequately compensate you for your damages. However, you can make a counteroffer with the help of a personal injury attorney. A competent attorney will ensure that you receive the highest settlement possible.

Are settlement checks taxable?

Identifying the portions of a litigation settlement that are taxable can be challenging. Each legal claim is different, and there are always exceptions to the rules.

In most cases, legal awards such as settlements and damages are subject to income taxation. However, damages from bodily harm are exempt from taxes under the law (particularly car accidents and slip and fall settlements).

In addition, If your mental distress was caused by your physical injury or illness, whatever money you get as a settlement is not taxable. The reimbursement for healthcare costs, assuming no deductions were made in the past, is tax-free.

On the other hand, taxable  settlements include but are not limited to

  • Any return on investment of the settlement money
  • Punitive damages and Interest
  • Lost wages
  • Emotional distress not caused by physical injury

What is the most common settlement option?

The most frequent settlement option is the lump sum payment. If you accept a lump sum settlement, the remaining funds are paid once after deducting legal fees and, expenses, medical liens from the lump sum settlement amount.

In contrast, a structured settlement allows you to receive your payout in several installments spread out over time. The longer the accumulating period, the bigger the value of your payout.

You may be able to negotiate a hybrid settlement that includes elements of a lump amount and a structured settlement. The immediate expenses are paid from the lump sum. At the same time, the structured installments will compensate for costs that will continue to accrue due to continuous medical care or lost income.

Let the Law Office of Chris Stahl handle your criminal defense case


Personal injury claims can be complicated, so it’s best to have a competent lawyer on your side. Consult Bossier City Attorney, Christopher M. Stahl to ensure you are compensated fairly for your injuries. He is well-versed in taking on insurance firms and winning the compensation his clients need and deserve.

Contact the law offices of Christopher M. Stahl if you’re unsure about your case’s best settlement option. You may count on his advice to guide you toward a settlement that best suits your needs.

Contact us by filling out the form below.

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