How Do Car Accident Settlements Work?

The driver who is at fault in a car accident is responsible for paying the other driver’s damages, but it’s not automatic. The car accident settlement process can be long and difficult.

A car accident settlement is a way for you to get compensated for your financial losses from an accident that was not your fault.

Car accident settlements include the following compensation:

  • Both short-term and long-term medical costs
  • Lost wages including future wages if you’re disabled
  • The damage to your car and other property
  • Pain and suffering and more.

In a perfect world, car accident settlements would work without a hitch. The insurance company would recognize what you need to cover your financial losses and you’d get the money without a fight. But it’s not a perfect world and car accident settlements often don’t work that way.

The car accident settlement process requires attention to detail, an understanding of what’s required to get compensated and a willingness to advocate for yourself and not be steamrolled into a settlement that isn’t satisfactory. In all but the simplest cases, hiring a personal injury attorney will help make sure the car accident settlement process works for you the way it’s supposed to.

Car Accident Settlement Process

The car accident settlement process has distinct steps that you must follow in order to get a settlement that will compensate you adequately for your damages. That said, each settlement is different. Depending on the complexity of the accident, the severity of injuries, questions about fault, and more, the process can be long and complicated.

It’s a good idea to get an attorney for a car accident settlement if:

  • The accident is serious, with fatal or severe injuries.
  • You need help filing an accurate and error-free claim with the amount of compensation you need for the damages you suffered.
  • The insurance company wants you to sign a waiver or authorization to review your medical history.
  • The insurance company denies your claim or offers a much lower one than what you asked for.

Most car accident attorneys advise that if an accident involves injuries, you should get an attorney as soon as possible.

“It sounds cliché, but the insurance companies didn't create a billion-dollar industry by playing fair,” said Molly Rosenblum, owner and founding attorney of The Rosenblum Allen Law Firm, in Texas.

“They will do everything they can to keep every last penny possible. Lawyers (good ones who do personal injury) know the insurance company game and how to use it against them to get the best possible resolution in a case. A lawyer can make sure you are protected and ensure your rights are secure. They should help explain the legal mumbo jumbo of an accident and help you recover without the stress and worry of lost income or excessive medical bills.”

The process starts at the accident scene – get the other driver’s contact and insurance information, take photos of the damage and the overall scene with your phone, get contact information for witnesses. Most importantly, keep your thoughts on fault to yourself. Say little, don’t say it was your fault and don’t post photos and opinions on social media.

Regardless of who is at fault for an accident, drivers must notify their own insurance company ASAP.

The steps in the process are:

Filing a Car Accident Injury Claim

File a claim with the at-fault driver’s insurance company – you’ll need the accident details as well as the amount you’re seeking.

Most states have specific damages that can be claimed. Among other things, allowed damages include:

  • Medical, disability expenses
  • Vehicle repair, replacement
  • Lost wages, earning capacity
  • Pain and suffering

Claim Is Investigated

Filing a claim doesn’t automatically mean your settlement is on its way. The at-fault driver’s insurance company will look for reasons not to pay, or to pay a lower amount than you asked for. The investigation will include reviewing accident reports, interviewing witnesses, a deep dive into medical records, and more.

Insurance Company Issues a Decision

After the investigation, the insurance company will approve your claim or to deny it. If the claim is denied, hire a personal injury attorney to fight the decision.

Common reasons for insurance denial are:

  • Their driver wasn’t at fault
  • Procedural issues or errors
  • The policy doesn’t cover the claim

Insurance Makes First Settlement Offer

If the insurance company approves your claim, the first settlement offer will likely be less than what you asked for. You don’t have to accept it – and shouldn’t if it won’t compensate you for your losses. You can negotiate for a better settlement.

Negotiating a Car Accident Settlement

You – or better, your attorney – may make a counter-offer to the insurance company’s first settlement offer. If the insurance company doesn’t accept it, you can pursue mediation, arbitration or lawsuit.


Mediation is a way to avoid the expense and time of a lawsuit. The two sides agree to sit down and compromise on a settlement, guided by a trained mediator. The result is not legally binding. Many states require mediation before a claimant can file a car accident lawsuit.


Arbitration is another way to avoid going to court with a car accident settlement, but it differs from mediation in that the arbitrator, or panel of arbitrators, decides, rather than the two sides coming to an agreement. It can be binding – the decision must be followed – or nonbinding.

Filing a Lawsuit

More than 90% of car accident claims are settled before they go to court. But If all else fails and you have to file a lawsuit to get compensated, hire an attorney, if you haven’t already. The insurance company has its own attorneys experienced in fighting lawsuits, and you want to be evenly matched. Lawsuits can be long and costly. The good news is that most attorneys work on contingency, which means they only get paid when they win.

FAQs About Car Accident Settlements

A car accident settlement should compensate you for financial losses sustained in the accident. The insurance company takes into account your medical costs, lost wages, property damage, and more. There are also mathematical calculations for intangibles like pain and suffering. Many states have caps on how much can be paid. The average settlement in 2020 was $20,235 for bodily injury and $4,711 for property damage. But a disabling injuring can be six figures, and a settlement that involves a death averaged $1.75 million in 2020.

» More About: How Car Accident Settlements Are Calculated

It can take anywhere from four weeks for a simple claim settlement to a year or much longer for one that goes to court. A settlement is final when the person making the claim agrees to the amount and signs a release saying they won’t ask for more money. Some states have a deadline for when a payout must be made after a settlement is final, usually 30 or 60 days.

In a no-fault state, you start with your own insurance company to make a claim for bodily injury, but with the at-fault driver’s insurance for property damage. If your injuries exceed your personal injury policy (PIP), you can pursue medical damages from the other driver’s insurance company.

There’s no requirement that you must have a lawyer for a car accident settlement. But if the claim isn’t simple and obvious, you will do better with one than without. Insurance companies have experienced experts working for them, and you’re at a disadvantage when it comes to getting fairly compensated for your claim.

Maureen Milliken

Maureen Milliken has a three-decade career as a journalist at daily newspapers and publications that focus on business and consumer finance. She covered several beats during her newspaper career, including local and state news, features on prominent public officials and several years running a sports department. She is a subject expert on topics that include consumer debt, consumer credit, labor issues, financial abuse, rural development, and legal matters resulting from accidents in the workplace and on the roads. She is adept at presenting complicated topics in an easy-to-read format that helps readers understand the topic's impact on their lives … and their pocketbooks!


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