How Is a Settlement Paid Out?

Steven A. Bagen | December 11, 2024 | Personal Injury

Most personal injury lawsuits are paid out in one of two ways, depending on the settlement terms. If you file a successful personal injury claim or lawsuit, you may be entitled to either a lump-sum settlement payment or periodic payment disbursements. If you or a loved one have suffered an injury in a personal injury accident, consult an experienced Micanopy personal injury lawyer to explore legal options for recovering compensation for your claim.

 

Lump Sum Settlements

Accepting a lump-sum settlement means receiving all financial compensation in a single, one-time payment settlement check. It is the most common option for personal injury accident victims because it benefits injured parties to pay off urgent medical and rehab bills, living expenses, and debt that may have accumulated due to injuries and recovery time. Lump-sum payments are generally worth less than long-term structured settlements.

Structured Settlements

Structured settlements are paid in installments over time instead of all at once. Accepting a structured settlement option means receiving a portion of your settlement in increments, usually monthly or annually. They often exceed the total amount of a lump sum payout. However, your initial payments are less, and most personal injury accident victims opt for a lump sum to cover the immediate expenses of their accident and injuries.

Class Action Settlements

Class action lawsuits involve multiple plaintiffs fighting for compensation over the same injuries. These settlements are generally paid by an insurance claims administrator who decides how much each plaintiff will receive. They often involve an online questionnaire to provide your contact information and provide minimal payouts.

However, class action lawsuits with substantial payouts will require more evidence. Law firms that handle class action lawsuits must follow a distinctive process to obtain a settlement for the entire group. Instead of contingent arrangements, the court decides on attorney fees.

How Long Does It Take To Get a Settlement Paid Out?

All personal injury accident cases are unique to their individual circumstances. The amount of time your personal injury settlement takes depends on many factors, such as:

• The nature of your accident
• The severity of your injuries
• The length of your treatment
• The extent of your pain and suffering 
• The strength of your evidence
• Whether or not liability is clear
• Whether or not there are multiple liable parties
• Insurance policy limits

The willingness of the at-fault party’s insurer to settle largely affects your settlement timeline. Sometimes, insurance companies will stall by delaying claims. Others are unwilling to negotiate and refuse to accept fair settlement terms. Dealing with bad-faith insurance company tactics can cause your personal injury claim to take time. Your attorney may consider filing a lawsuit if they are unreasonable for too long.

How Do They Calculate How Much of a Settlement Is Paid Out?

Calculating your settlement involves tallying your economic damages and determining a value for your non-economic damages before adding the sums together. Insurance companies use the multiplier and per diem methods to assign value to your non-economic damages.

The Multiplier Method

The multiplier method is the primary way personal injury lawyers calculate non-economic damages. It takes the total of your economic damages and multiplies the sum by a number between 1.5 and 5. The number used on the multiplier method scale reflects the severity of your non-economic or pain and suffering damages. The more severe, the higher the multiplier.

The Per Diem Method

The per diem method calculates non-economic or general damages by multiplying the daily dollar value the insurance company or court assigns to pain and suffering. The value will be based on factors, including the severity of injuries, medical evaluations, test results, and expert opinions. Once assigned, the dollar value is multiplied by the estimated number of days you are expected to experience pain and suffering.

Costs Deducted From Your Settlement Before Disbursement

Before your settlement is paid out, your personal injury attorney will subtract costs and expenses from your final compensation. These costs will include your lawyer’s contingent fee as the disclosed percentage discussed during your free consultation. Other expenses may include liens placed on your settlement for outstanding medical and rehabilitation bills or from a healthcare provider.

Tax Implications of Settlements 

The Internal Revenue Service (IRS) has specific instructions on how personal injury settlements are or are not taxed. Factors that influence tax obligations include your settlement structure. Guidelines for personal injury settlement tax requirements are as follows:

• Economic Damages: The IRS does not tax compensation for personal injuries—regardless of whether it resulted from a personal injury settlement or lawsuit. However, suppose you previously deducted medical expenses relating to your injuries on your tax return and received a tax benefit. In that case, you may be obligated to include your reimbursed portion of those costs in your taxable income.
• Pain and Suffering: Compensation for these pain and suffering damages—emotional distress, mental anguish, and defamation and humiliation—are tax-exempt if they originate from your physical personal injuries. If they are unrelated, the compensation may be subject to taxes. 
• Punitive Damages: Unlike compensatory damages, punitive damages are taxable income. There is an exception for damages in wrongful death cases. Refer to IRC Section 104(c), which allows punitive damages to be excluded.

Taxes are important, and mistakes are critical. Ask your personal injury lawyer to clarify any portion of your settlement that is taxable income to avoid potential penalties.

Compensation You May Seek in a Personal Injury Settlement

The compensation you seek in a personal injury claim involves valuing the economic and non-economic damages relating to your accident type. In the event of wrongful death, you might seek additional damages. Punitive damages are rare with personal injury claims. However, in particularly heinous circumstances, a case may warrant a need to pursue them.

Economic Damages

Economic damages are the tangible losses you suffer from a personal injury accident. They are quantifiable by paper receipts, bills, invoices, and other financial documents demonstrating their losses. What economic damages your lawyer pursues depends on the circumstances of your case. Standard economic damages in a personal injury claim are as follows:

• Medical Expenses—Ambulance transport, ER visits, medical evaluation, surgery, hospitalization, medical devices, mental health care, home health services, prescription medications, and future medical expenses.
• Rehabilitation Fees—Post-accident rehabilitation therapy, physical therapy, chiropractic care, massage, traction, occupational therapy, vocational therapy, orthopedic care, and future rehab costs.
• Disability Costs—Mobility aids, such as wheelchairs, in-home modifications, like widened doorframes, wheelchair-accessible bathrooms, lowered counters, chair lifts, ramps, handrails, and levers, and transportation modifications, such as seat belt adjustments, hand controls, steering devices, and wheelchair-accessible vehicles.
• Professional Losses—Hourly wages or an annual salary, tips, commissions, raises, bonuses, benefits, vacation time, sick leave, paid time off (PTO), healthcare benefits, retirement benefits, and diminished earning capacity or future earnings.
• Property Damages—Repairing or replacing your vehicle, rental cars, rideshare services, car seats, cell phones, glasses, clothing, bicycles, scooters, mailboxes, fencing, gardens, landscaping, residential or commercial buildings damage, and any other property damages.
• Household Services—Cooking, housekeeping, childcare, lawn care, and other hired services required due to your injuries.
• Delivery Services—Grocery delivery services through local grocers or grocery apps, meal delivery, and prescription medication delivery services.

It is important to document all out-of-pocket expenses, including copays, deductibles, prescription med costs, and travel time and expenses to and from medical and rehabilitation appointments. Provide copies of all documents proving monetary losses associated with your personal injury case.

Non-Economic Damages

Your non-economic damages are often referred to as pain and suffering. They are the intangible losses that are not quantifiable by receipts but deserve to be valued for compensation. Standard non-economic damages include:

• Acute and chronic pain conditions
• Emotional distress and mental anguish
• Post-traumatic stress disorder (PTSD)
• Anxiety and post-accident depression
• Sleep losses—pain, nightmares, insomnia
• Lost or diminished quality of life
• Worsening of previous conditions or shortened life expectancy 
• Loss of society and companionship
• Loss of assistance or service
• Traumatic brain injuries (TBIs)
• Spinal cord injuries
• Vision and hearing losses
• Physical impairments—amputation, disfigurement, scarring
• Development of phobias relating to your personal injury accident 
• Embarrassment or humiliation
• Development of substance misuse disorder due to prescribed pain management

You will not automatically qualify to seek compensation for all non-economic damages listed. Only those relevant to your case will be included in the demand letter. To document non-economic loss, keep a detailed post-accident injury journal.

Wrongful Death Damages

Wrongful death occurs when family members lose a loved one due to the negligence of another in an accident. In addition to many of the already outlined damages, additional wrongful death damages may involve:

• Final arrangement costs—funeral, memorial services, burial, cremation
• Final medical expenses of the decedent relating to injuries sustained in their accident 
• Pain and suffering of the decedent before their death
• Pain and suffering for surviving family members filing the claim
• Loss of consortium—spousal relations, intimacy, love, companionship
• Loss of parental guidance
• Loss of household services—cleaning, childcare
• Loss of earning capacity from injury date to decedent’s death
• Loss of enjoyment of life from injury date to decedent’s death
• Loss of financial support—income, salary, bonuses, benefits, future income
• Loss of inheritance

Wrongful death is an unfortunate tragedy that the Centers for Disease Control (CDC) reports claims over 379,000 lives annually. Those numbers do not reflect wrongful death from medical errors, which is linked to an additional 440,000 lives in the U.S. annually.

If you lost a loved one due to someone else’s negligence, consult a wrongful death attorney immediately. While money can never replace the loss of your loved one, you’ll want to discover a means to recover compensation for your loss to ease the burden of financial hardship during this difficult time.

Punitive Damages

Exemplary or punitive damages are financial compensation awarded by a judge and jury in civil lawsuits for egregious acts that warrant punishment for the defendant. They are intended to deter citizens from repeating the offense in the future and are not paid out by liable insurers. Generally, punitive damages are not available in personal injury lawsuits, with statistics showing only about five percent of verdicts securing them.

How to Properly Document Damages for Your Settlement

Proper documentation is vital to prove damages in a personal injury claim or lawsuit. To maximize your settlement, you must organize all paperwork and keep a detailed post-accident journal.

Organize Paperwork Evidence

Keep every piece of your paper trail documenting monetary losses. You are advised to make copies before providing them to your attorney. Examples of paperwork relevant to your claim are as follows:

• EMT bills
• Hospital bills
• Medical bills from primary care doctors and specialists
• Physical therapy statements
• Rehabilitation billing statements
• Rental car invoices
• Vehicle-repair invoices
• Home modification costs or estimates
• Employer wage loss statement
• Pay stubs 
• Tax returns
• Bank statements
• Daycare or in-home childcare invoices
• Household service invoices
• Receipts for prescriptions and copays

You’ll want to save all your receipts proving out-of-pocket expenses relating to your injuries. These may include gas expenses and mileage to and from medical appointments, over-the-counter medications, and the cost of your post-accident injury journal.

Keep a Detailed Post-Accident Journal

Proving your pain and suffering can be a challenging process and impossible without proper documentation. To ensure adequate documentation, get a post-accident journal and keep detailed and dated entries about symptoms, including:

• Pain location, duration, and level on a scale of 1-10
• Activities that worsen pain
• Limitations or restrictions on daily tasks or work-related activities
• Effects of current treatment and injury progress
• Emotional condition
• Numbness and tingling
• Dizziness and headaches
• Pain management treatments and medications
• Sleep loss due to pain or insomnia
• A loss of enjoyment of life
• Psychological symptoms like anxiety, depression, and PTSD

Remain consistent in documenting pain and suffering if you want to secure compensation for these damages. Remember to date all entries and be as detailed as possible about your symptoms.

Consult an Experienced Personal Injury Lawyer

To better understand how a settlement is paid out or to retain the services of a personal injury attorney, schedule a free case evaluation. They can better advise you on your circumstances after learning the specifics of your case.