How Are Personal Injury Settlements Paid Out?

February 22, 2024

When you retain Hensley Legal Group to represent you for your personal injury case, our skilled personal injury lawyers will work tirelessly to get you top compensation for your claim, most often as a settlement with the defendants and their insurance companies. But how are personal injury settlements paid out? Join us as we explore the ways in which you could be compensated for an injury.

How Are Personal Injury Settlements Obtained?

Before examining how a settlement is paid out, it is important to understand how personal injury settlements are obtained and what factors influence the amount of compensation that plaintiffs may receive.

If you hire legal representation for an accidental injury in Indiana, your personal injury attorney will conduct an investigation into the causes of your injury and everyone who may be responsible for it within the time allotted by law, known as the Statute of Limitations. The Statute is two years for most Indiana personal injury claims, though it can be significantly shorter in cases against government bodies, with further restrictions that may apply under Indiana’s Tort Claims Act. When a government entity is involved, a Notice of Tort Claim may need to be filed with the appropriate agency within 270 days of the date of loss (or 180 days in claims against some “political subdivisions”). Failure to comply with all regulations and deadlines could forever bar a plaintiff from complete recovery.

Once the at-fault parties have been identified, your personal injury lawyer will give formal notification in writing to the defendants and any insurance companies with applicable coverage for the incident in question. If necessary, a lawsuit can be filed as well in a court that has the power to hear the case at trial and issue a binding judgment on the defendants, though most personal injury claims will be settled prior to trial during negotiations with the defendants’ insurers and/or defense attorneys.

Factors That Influence Your Personal Injury Settlement

In arriving at a figure for your personal injury settlement, the lawyers on both sides will look at the losses you have sustained from this incident, which may include:

· Past, present, and future medical bills

· Lost wages

· Pain and suffering

· Mental and emotional trauma

· Reduced quality of life

· Permanent impairment

· Loss of consortium

· Punitive and/or wrongful death accident damages (if applicable)

Your personal injury settlement may be capped by the extent of the defendants’ insurance coverage or assets. If your damages exceed what the defendants can pay, you may need to seek out other avenues of recovery, such as uninsured or underinsured motorist coverage if you were injured in a car accident.

Despite the challenges that your case may encounter, capable personal injury attorneys will always strive to get you compensated for the entirety of your losses and maximize what you receive for your personal injury settlement.

Lump Sum Settlements Provide Greater Freedom and Greater Risk

Assuming all parties involved have reached an agreement to resolve your personal injury case, your personal injury settlement can now be paid out. For most settlements, the plaintiff will receive everything owed by the defendants up front (minus legal fees and expenses, liens, and other costs that may be associated with the file). This is known as a lump sum settlement.

Lump sum settlements are the most common types of personal injury settlements. They let defendants resolve their legal obligations once and for all and grant more control to plaintiffs to use or invest their settlement funds as they see fit. Plaintiffs may find lump sum settlements particularly appealing when they are under economic strain, as is often the case with victims of injury.

But the greater freedom that a lump sum settlement offers may come with a greater degree of risk. Receiving your settlement right away will allow you to spend as much of it as you want when you want to do so, which could leave very little of your settlement left if you are not careful.

Investing your settlement money could allow you to grow it, though investing can be a gamble – a gamble that could cost you some or even all of your personal injury settlement should the investment not succeed.

Structured Settlements Offer Less Up Front But More Security

Given the potential hazards involved in a lump sum settlement, some plaintiffs may choose to receive a structured settlement if they are presented with the option. In a structured settlement, the funds are paid out in installments over an extended duration rather than all at once.

A structured settlement may be preferable to plaintiffs willing to delay immediate gratification in favor of more security. Because you are guaranteed to receive a set amount of money over a designated timeline, you can better plan for your future, with steady payments providing a reliable source of income around which you can organize your spending. A structured settlement could further shield you from the negative consequences of bad investments, which are the hidden drawbacks of the “golden opportunities” that seem to present themselves to beneficiaries of sudden monetary windfalls.

Since structured settlements are frequently paid out through annuities administered by insurance companies, they may be regulated by laws in your state that require insurers to meet their fiscal obligations. If the insurance company in charge of your annuity declares bankruptcy or becomes insolvent, you may be able to recover what you are owed through a state-run safety net program, such as the Indiana Department of Insurance’s Guaranty Fund.

While a structured settlement can serve as a hedge against uncertainty, it gives you far less access to your settlement funds, so you are constrained in what you can spend or invest at any moment. This can be troubling when an unexpected expense rears its head, such as a catastrophic medical event or a family disaster. Even if your total settlement would cover this expense, you may only be able to get your hands on the portion of the settlement allotted to you for that period.

As you can see, lump sum and structured settlements both have upsides and downsides. If you have the chance to select how your personal injury settlement is paid out, it may be wise to weigh the pro and cons with your personal injury lawyer or financial advisor before making your decision.

How Much of Your Personal Injury Settlement Can You Receive?

The dollar amount that the defendants and their insurance carriers agree to pay to settle a case represents the gross personal injury settlement, not the net proceeds that you will receive out of that settlement.

Generally, the defendant’s insurance company will issue a check for the gross settlement amount to your personal injury attorney, who will deposit it into an escrow or trust account, where it should be held separately from the attorney’s personal or business funds.

Your lawyer will then repay anyone who has established claims on your personal injury settlement, such as medical providers with outstanding bills for treatment. Insurance companies may also seek reimbursement for what they have paid out for your injury, like your health insurance provider, an auto insurer who covered the cost of repairs if your injury occurred in a motor vehicle accident, or a workers’ compensation insurance company who provided partial payment for missed work if your accident happened while you were on duty. If you took out a loan in anticipation of your personal injury settlement, that loan provider would need to be repaid too.

Most creditors demanding repayment will place liens for reimbursement on your file, which your attorney is legally required to resolve after the settlement of your personal injury case. Your personal injury lawyer can negotiate with your creditors to reduce the amount that you owe, since many will accept a lesser payment that is reasonable instead of holding out for full payment they might never receive. If you have any creditors who have not placed a lien on your file but are still seeking payment, you could ask your attorney to negotiate with them so that you can be debt free.

Aside from repaying your creditors, your lawyer will seek payment for his or her services. Most personal injury attorneys work on a contingency basis, so this payment will likely be taken as a percentage of your personal injury settlement. Additionally, your lawyer may seek remuneration for any out-of-pocket expenses incurred on your file before distributing the remainder of your personal injury settlement to you.

Do You Have to Pay Taxes on Your Personal Injury Settlement?

You should not have to pay taxes on the majority of your Indiana personal injury settlement, though certain aspects of that settlement may be considered taxable under state and federal law.

As stated, your Indiana personal injury attorney will seek to get you compensated for all of the losses you have suffered because of your accident, including your injuries, medical bills, lost wages, pain and suffering, emotional trauma, and punitive damages.

The Internal Revenue Service will not require you to pay federal taxes for “the amount of any damages…received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness,” nor should you have to pay state taxes to the Indiana Department of Revenue on any compensation you receive for physical injuries. Funds received for “pain and suffering” or emotional damages stemming from your physical injuries would likely not be taxed either.

However, compensation paid out in a personal injury settlement for other types of damages might be considered taxable at the state and federal levels. For example, payment awarded for wages you lost because of your injury could be taxed since it replaces income that would have been received and taxed if you had not suffered your injury.

Furthermore, courts sometimes levy punitive damages against defendants whose actions were extremely negligent or displayed “willful or wanton” disregard for the safety of others in order to discourage equivalent misbehavior later on. If you receive any of these punitive damages, they could be taxed as income.

While funds acquired in a personal injury settlement for medical expenses are not usually taxed, if you have previously claimed the medical expenses on your tax return and received a deduction for them, your compensation for these expenses might be considered taxable.

This is in no way meant to be a comprehensive explanation of the tax liability for your personal injury settlement. To be sure that you are in compliance with all state and federal tax codes, you should consider consulting with a trained tax attorney or certified public accountant before filing any tax returns after a personal injury settlement is paid out.

How Are Personal Injury Cases for Children Different?

Children are the most vulnerable members of society, so the law takes great pains to protect their interests and safeguard them from exploitation. For this reason, heightened restrictions and requirements will apply when minors are involved in personal injury cases in the State of Indiana.

Minors do not have the legal capacity to file lawsuits or enter into binding contracts, so all personal injury suits on their behalf must be initiated by an adult qualified to represent them (most often a parent or guardian). And because of their legal “incompetency,” minors are given more time to pursue a personal injury lawsuit. While the Statute of Limitations for adult personal injury plaintiffs in Indiana is two years from the date of injury in most cases (or one year in cases against government entities), the Statute for minors will not start counting down until they turn 18 years old. Consequently, a child may have until age 20 to file or otherwise resolve a personal injury claim (or age 19 in cases against government entities). Similarly, that child would have 270 days from the date of his or her 18th birthday to file a Notice of Claim when one is needed (or 180 days from that date when the law necessitates it).

Even though injured minors have that long to take legal action for their injuries, it does not mean that much time will elapse before they do. Most often, an authorized adult will initiate a personal injury lawsuit or claim on a child’s behalf with the assistance of a personal injury lawyer. In the State of Indiana, this adult would be the child’s parent or legal guardian, though a court-appointed Guardian ad Litem may be able to file suit in the child’s best interest in certain situations.

The losses that may be recoverable in a child’s personal injury lawsuit are comparable to the ones that may be recoverable in an adult’s lawsuit, including:

· Past, present, and future medical expenses

· Psychological and emotional anguish

· Pain and suffering

· Diminished quality of living

· Impairment

· Punitive and/or wrongful death accident damages (when applicable)

Though minors rarely earn income, parents may be able to make a claim for income they lost by missing work in order to care for a child’s claim-related injuries.

How Are Personal Injury Settlements for Minors Paid Out?

When a minor’s personal injury case is approaching settlement, there are various constraints on how that personal injury settlement may be paid out in Indiana, with the amount of the settlement heavily impacting the way in which it is paid.

While the child’s parents or guardians are permitted to negotiate or settle a case on the child’s behalf, a settlement cannot be finalized until a court approves it. A petition requesting the court’s approval (known as the “Petition to Compromise and Settle the Minor’s Claim”) will need to be filed either in the county where the lawsuit was filed or in the county where the minor lives.

If the amount of the minor’s personal injury settlement is more than $10,000.00, state law requires the court to establish guardianship over the minor. This guardianship provides authority to manage the child’s affairs in relation to the personal injury settlement, though it has no impact on a parent’s or guardian’s legal status in relation to the child. The petition to establish guardianship (known as the “Petition for Appointment of a Personal Representative or a Guardian”) must explain why the guardianship is being requested and should be filed at the same time as the petition to approve the minor’s settlement. The petitioners will then need to attend a hearing in court on both requests, during which they will be asked to explain:

· how the child’s injury took place;

· the child’s condition after the injury;

· the treatment the child received for the injury; and

· why the proposed settlement is in the child’s best interest.

If the amount of the minor’s personal injury settlement is $10,000.00 or less, the court will not need to establish a guardianship, though the parents or guardians will still have to file a petition requesting the court’s approval for the settlement and attend a hearing on the matter.

After the court approves the settlement (and establishes the requested guardianship when one is warranted), the settlement funds may be disbursed to the child’s parents or guardians. But because the settlement is legally the property of the minor, the parents or guardians can only access those funds for “the support, use, and benefit of the minor” – something which must be strictly supervised by the court.

Typically, the court will authorize payment out of the settlement funds to resolve pending bills from medical providers for the child’s treatment. After these providers have been compensated, the court may issue the remainder of the settlement to the child through the parents or guardians, who will need to deposit these funds into a restricted account in the child’s name.

Once the settlement has been approved, the funds must be deposited into an account in the minor’s name. No funds can be withdrawn without the court’s approval until the minor turns 18, at which point the minor will have control over the account.

Should the parents or guardians wish to withdraw any of the personal injury settlement funds prior to the minor’s 18th birthday, they will need to get the court’s approval and provide paperwork demonstrating that the funds were used for the approved purpose. When the minor plaintiff turns 18, he or she will be given control over the funds remaining in that account.

Hensley Legal Group Will Be Here for You

We hope that this discussion has been helpful, especially if you are currently struggling to cope with injuries caused by somebody else’s negligence.

A serious accident can change your life and put your family’s continued well-being in doubt, but you should know that the personal injury attorneys at Hensley Legal Group will be here for you. We have been standing up for the everyday people of Indiana for more than a quarter century, and we are ready to do whatever it takes to get justice for you and the ones you love.

To schedule a free case review with one of our dedicated Indiana personal injury lawyers, please contact Hensley Legal Group today.