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Car insurance settlements

Know when to negotiate your insurance claim settlement after a car accident.

After a car accident, you’ll work with the insurance company to settle your claim and get a payout for your car’s damage. The process can look different based on who caused the car accident and whether you live in a state with no-fault or at-fault laws. Either way, you can negotiate a fair settlement amount with your insurance company, although doing so can extend your insurance claims process.

How does a car insurance settlement work?

After your insurer accepts your car insurance claim, an adjuster works to estimate damage expenses and pay you to cover repairs. Most adjusters contact you within one to two days of filing the claim, and insurance companies are required to settle your claim in 30 to 40 days in most states.

Work with your adjuster to get on the road to an insurance payout in five steps:

  1. An adjuster contacts you for information about the accident and your vehicle’s damages.
  2. The adjuster may schedule to take photos of your car and note details in person to put together a more accurate estimate of complicated damages.
  3. The adjuster sends you written documentation of details about the damage and a settlement amount for you to accept with your signature.
  4. If you have questions or disagree with the settlement amount, you can negotiate the details with the adjustor.
  5. After you accept the settlement amount, you receive a settlement check in person, by mail or by direct deposit. In some cases, the check is sent directly to the repair shop.

How a settlement works in at-fault states

At-fault states streamline the settlement process by leaving calculations to the insurer. Your insurer multiplies the expenses on record for your car or medical bills by a higher number for bodily injuries. The number multiplied is based on the severity of the damages and expected expenses like future medical bills and pain and suffering.

However, many states reduce the settlement based on your percentage of fault in the accident. If the state or your insurer determines you’re mostly at fault for damages, you may not receive any settlement. And in Alabama, DC, Maryland and Virginia, you could receive little to no settlement even for a small percentage of fault.

In no-fault states, your insurer pays for your damage without any need to determine fault. The other driver’s company does the same for the car under its policy.

What’s the average settlement for a car accident claim?

The average insurance settlement ranges from $3,000 or more for a collision or property damage claim to more than $15,000 for a bodily injury claim, according to claims data from the Insurance Information Institute. More serious accidents typically receive more.

Companies figure the settlement amount by calculating actual damage expenses or medical bills and adjusting that amount based on their calculation for pain and suffering or to cover involved parties. To determine any pain and suffering, the insurance company may consider the severity of your injuries or how long you’ll need to recover.

How do insurance companies determine a total loss settlement?

Your insurance company offers a settlement for your totaled car based on the actual cash value of your vehicle. Your adjuster researches this value based on your car’s features, pre-accident condition, mileage and the market in your area.

Your car’s actual cash value is the market value of your car including depreciation — so you probably won’t get the full value that you paid for your car.

Some policies offer coverage for your car’s replacement cost, which means that you can pay for another car that’s of similar age and condition as your damaged car. In this case, replacement cost coverage will be specified on your policy.

When should I reject the settlement offer?

A settlement isn’t final until you sign off on the offer, which leaves room for rejecting for reasons that include:

  • The offer isn’t enough to pay for expenses. If car repairs or medical bills go beyond the settlement amount, consider asking for more to cover the amount. The amount may still be fair based on fault and depreciation.
  • You expect future bills. If the accident spells potential medical or other costs later, you could ask for a higher amount than initially offered.
  • Your policy prohibits future claims for the same incident. Read your policy to learn what’s allowed if you find more damage or injuries after the claim is settled.

Can I negotiate the payout?

Yes. Though it can delay your payment, you can negotiate the amount in four steps:

  1. Research a fair settlement amount for your car’s damage or replacement value.
  2. Contact your adjuster about reconsidering the amount, and ask if the company needs further proof or action.
  3. Send necessary documents, such as bills, expense estimates or research.
  4. Receive, review and sign your new, more satisfactory settlement offer.

You may want to consider a lawyer if your settlement is far below your desired amount or you’ve suffered serious personal injury or fraud. Discuss with any potential legal help whether the payout is worth the time, court fees and income loss.

How do I get paid for a car insurance settlement?

Once you’ve agreed to the settlement, your insurer may send you a check or pay for the damage directly by sending payment to the repair shop. The method of delivery depends on other parties involved or your insurer’s policy on using the settlement for repairs.

Will I pay taxes on the insurance payout?

No. In most cases, you won’t pay taxes on your settlement because it goes toward repairing or replacing your vehicle, not supplying extra income. However, you might have to pay taxes for income loss coverage or lawsuit cases that involve punitive damages, income loss or payment for pain and suffering not related to an accident injury.

When in doubt, consult a professional for advice. Guard against tax fraud by choosing a reputable tax professional and avoiding putting your signature on blank tax forms.

Do I have to spend the money on bills from the accident?

Yes, in most cases. Exceptions vary by state and insurer as to whether you can use the settlement money for something other than repairs. Check your state laws or speak with your agent for more information.

If your state or insurance company requires the settlement to be spent on repairs, pocketing it could be considered insurance fraud. Also, you might have a choice if you pay a car loan or lease, because the party you’re paying to has made an investment in your car.

What should I watch out for?

While many cases are settled without issue, you can run into potential problems in specific situations, like:

  • Admitting fault. You may receive a higher settlement if you don’t admit liability and instead rely on your insurer for an unbiased decision.
  • Misrepresenting facts. If your report doesn’t match other evidence involved in the case, you may need to answer questions or receive a denied claim. Make sure your insurer gets the facts straight without errors about the accident.
  • Pre-existing conditions. You might need medical proof that a known medical condition was exacerbated by a car accident.
  • Excessive repair estimates. Consider verifying the estimated repair amounts with a reputable source for a second opinion to avoid scams.
  • Denied claims. If your claim is rejected, you might be able to work with your insurer on the details that led to the denial to ultimately receive a settlement.

Bottom line

Car insurance settlements are often a streamlined process that includes getting an estimate of damage, accepting a settlement offer and receiving your check. In some cases, it’s worth negotiating the amount you’re offered to pay for excessive costs now and in the future.

Looking for a new insurer? Shop around by comparing car insurance providers to learn which garner the best claims satisfaction and provide the strongest coverage you’re eligible for.

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