If you're nervous about going to court for your personal injury case, you may be glad to learn that most personal injury cases actually wind up settling out of court. In fact, 95 to 96 percent of personal injury cases end up being settled. However, knowing that your case is likely to be settled may also leave you with some questions. How much money can you get in a settlement, and would it be more if you went to trial? What's a structured settlement, and should you accept one? Will you have to pay taxes on that settlement money? Here are the answers you need to your settlement questions.
How Much Money Will You Get?
While the exact amount of money that you'll be able to settle for depends on the specific details of your case. But there are ways to figure out how much you should settle for. You can figure out how much money you should be looking for by calculating your losses and using a multiplier to estimate what your pain and suffering are worth.
The losses that you should consider include your medical expenses, property damage losses, lost income, lost future income, and estimated future medical expenses. The multiplier that will be used to represent the worth of your pain and suffering will be a number between 1.5 and 5.
The multiplier is the number that will probably be the biggest point of contention between you and the insurance company. They'll argue for a low number, and you'll argue for a high number. Where the number lands will depend on things like whether or not your injuries are permanent and how much medical treatment you'll need in the future. You can get an idea of what size settlement you should be looking for by using a personal injury settlement calculator.
Should You Take a Structured Settlement?
You often have two options when it comes to receiving the money from your settlement. You can opt for a lump sum payment, which will give you all of your money from the settlement in one cash payment. The other option is a structured settlement. With a structured settlement, you can opt to receive regular payments spread out over a number of years.
Which method of payment you choose depends largely on your current financial situation and how you handle your money. If you have mountains of unpaid medical bills and little savings to cover your lost time at work, you may need to take the lump sum in order to bring your accounts current. However, if you're more comfortable financially, you may prefer to receive the money monthly or annually to use for extra, vacations, or investments.
You can also choose to receive some of the money in a lump sum and the rest of it in a structured settlement. You can even choose to begin receiving your structured settlement payments when you reach retirement age, providing yourself with extra retirement income.
Will You Owe Taxes on Your Settlement Money?
If you've ever won big on a lottery ticket, hit the jackpot at a casino, or even received a large bonus at work, you know that almost any time you receive a big amount of money, the IRS has to get its share first. However, you'll be happy to know that this is usually not the case with personal injury settlements. With a few exceptions, the proceeds of a personal injury settlement for a physical injury are yours to keep tax-free, regardless of whether you settle or go to trial.
The exceptions are when your claim is for emotional injuries only, or when you receive punitive as well as compensatory damages. The tax-free rule applies to settlements that arise because of a physical injury, so if your only damages are emotional or mental, you will be taxed on your settlement.
Compensatory damages are the damages you receive as a result of your injury – the compensation for your lost wages, medical expenses, and pain and suffering. Those are the non-taxable payments. Punitive damages are damages that are awarded to you with the intent of punishing the defendant, in an effort to deter them from the behavior that caused your injuries. These are awarded separately from compensatory damages, and they are taxable.
Having the answer to these questions should help you understand more about how a settlement should work for you. You should consult an attorney in your area or from a firm like Otorowski Johnston Morrow & Golden P.L.L.C. for information about your specific personal injury case.