Understanding Settlement Offers and Questions to Ask Before Accepting

What an offer represents

An insurer’s offer reflects its own evaluation of liability, damages and risk, and its negotiating position. A first offer is often not a final one. At the same time, a low offer is not necessarily unreasonable — it may reflect real disputes about fault, causation or coverage. Understanding why an amount was offered is more useful than comparing it with a figure from a calculator.

What a release usually does

To receive settlement money, you will typically sign a release. A release is a binding contract and commonly:

• ends your claim against the released parties, usually including injuries you do not yet know about;
• may release more people or companies than the driver or owner you dealt with;
• may include terms about confidentiality, lien responsibility and indemnifying the payer against lien claims;
• may affect claims against your own insurer, such as underinsured motorist coverage, if consent requirements are not followed.

Read every word, and ask a lawyer to review a release if you are unsure what it covers.

Work out what you would actually receive

The gross offer is not what you take home. Subtract the attorney fee (if any), case expenses, and any liens or reimbursement claims to see the net figure. The Net Settlement Calculator does this and flags if deductions exceed the offer.

Questions to ask before accepting

1. Is my treatment finished? If you might need more care, a release usually prevents claiming for it later. Ask your doctor about expected future treatment.
2. Have all my losses been included? Compare the offer with your records of medical costs, wages and other expenses.
3. What liens or reimbursement claims exist, and are final amounts confirmed?
4. What coverage is available? Is the offer at the policy limit? Is there other coverage, including your own UIM?
5. What does the release cover, and who does it release?
6. What deadlines apply? If the claim does not settle, when must a lawsuit be filed, and has any government notice deadline passed?
7. What are the tax consequences? Damages for physical injuries are generally excluded from federal income, but interest, punitive damages and some other amounts are not. IRS Publication 4345 summarizes the rules.
8. Who decides? If you have a lawyer, the professional conduct rules adopted in most states require the lawyer to follow the client’s decision whether to settle. Your lawyer should explain the offer and their recommendation, but the decision is yours.

Responding to an offer

Common responses are to accept, reject, or make a counteroffer with an explanation — for example, pointing to records the insurer did not consider. Keep communications in writing where possible. Be wary of pressure to decide immediately; at the same time, do not let legal deadlines expire while negotiating.

Situations where advice is especially worthwhile

• Serious, permanent or uncertain injuries, or recommended future surgery.
• Disputed fault or multiple parties.
• Medicare, Medicaid or employer health plan involvement.
• Claims involving government entities or commercial vehicles.
• A release that covers unexpected parties or contains terms you do not understand.

If you are looking for a lawyer, the American Bar Association’s Find Legal Help directory lists lawyer referral services by state.

Sources and references

• American Bar Association, Model Rules of Professional Conduct (index) (opens in a new tab) — Model Rule 1.2(a), under which a lawyer must abide by a client’s decision whether to settle; states adopt their own versions
• IRS Publication 4345, Settlements — Taxability (opens in a new tab) — IRS overview of when settlement proceeds are and are not taxable
• 26 U.S.C. § 104 (via LII) (opens in a new tab) — federal income-tax exclusion for damages received on account of personal physical injuries or physical sickness
• American Bar Association: Find Legal Help (opens in a new tab) — directory of lawyer referral services and legal aid by state