How much should I ask for in a personal injury settlement?

After using a settlement formula to calculate your damages, you should generally ask for a settlement that is up to two or three as high as the formula’s results. This request is made in your demand letter. This letter is the beginning of settlement negotiations.

By asking for more than what you are likely owed, you are generally more likely to reach a higher settlement than if you start with a lower demand. On the other hand, if your demand is too exorbitant or flatly unreasonable, the other side may ignore it and not engage you in negotiations.

What is a fair personal injury settlement amount?

A fair personal injury settlement is one that fully compensates you. You deserve to be compensated for all of your losses that stemmed from the accident. This includes your:

• medical bills,
• reasonably anticipated future medical expenses, like physical therapy,
• lost wages and other forms of lost income while you were recovering,
• any lost earning capacity due to any disabilities that the accident will leave you with,
• pain and suffering,
• loss of consortium for your loved ones, and
• property damage.

A fair personal injury settlement will cover all of these losses.

The insurance companies that usually cover the negligent party, however, will try to minimize the payout. They do this because they are for-profit companies. They protect their bottom line by minimizing the amount of the claims they pay to injured parties.

Insurance adjusters do this by making an initial settlement offer that is way too low to cover your losses. However, the amount and the timing of this offer is designed to make it appealing. It often covers your medical treatment, right when the bills are about to become due. The hope is that the financial pressures will make you settle the case for a fraction of what you deserve. Some insurance adjusters will even make the offer seem like a one-time opportunity.

It is important to remember that the initial settlement offer is only the beginning. With the help of a personal injury lawyer, you can make a counteroffer by sending a demand letter. That counteroffer should include an appropriate settlement amount.

How can I calculate an appropriate accident settlement?

There are 2 major formulas for calculating an appropriate settlement amount:

1. multiplier formula, and
2. per diem.

The results of both of these calculations of your personal injury damages, however, can be reduced by 3 different factors:

1. shared fault rules,
2. damage caps, and
3. insurance availability.

A personal injury attorney can help you understand what an average settlement amount would look like in your case. His or her legal team can also provide the legal advice and representation needed to maximize that amount and then demand it in a personal injury settlement.

Multiplier method

The multiplier method is commonly used by insurance companies to estimate how much a jury would award you in a personal injury trial. The formula is: Economic damages + (economic damages x multiplier). Personal injury lawyers frequently use this method to decide how much to ask for in a personal injury settlement.

Your economic damages are those that can be easily stated in a dollar amount. They are your:

• medical bills,
• lost wages,
• lost earning capacity, and
• property damage.

These economic damages are then multiplied by a number between 1 and 5 to estimate your non-economic damages. Your non-economic damages are those that cannot be easily stated in a dollar amount. They include compensation for:

• physical pain,
• mental anguish,
• emotional distress, especially if the injuries cause a disfigurement,
• loss of consortium, and
• loss of enjoyment of life.

The multiplier number is based on the severity of your injuries and how much the accident impacted your life. Minor accidents generally get assigned a 1. Major accidents get a higher number.

For example: Joan slips and falls and breaks her wrist. Based on her medical records, her economic damages are $20,000 for the healthcare she has received. The accident does not keep her out of work and does not seriously impact her life – she just has to wear a cast for 6 months. The insurance adjuster assigns a multiplier of 1.5 to Joan’s case. This puts the estimate for Joan’s non-economic damages at $30,000 ($20,000 times 1.5). Using the multiplier method, a fair settlement value would be $50,000 ($20,000 for her economic damages, plus $30,000 for her non-economic damages).

Note that the multiplier method does not account for punitive damages. These damages are rarely awarded in cases based on negligence, though, unless they have unique circumstances.

Per diem method

The per diem method is a different way of estimating your non-economic damages. It pays a certain amount of money for every day that you experience pain and suffering. That amount is then added to your economic damages from the accident. This can give you an idea of how much to ask for in a personal injury case.

The set rate for your pain and suffering is generally calculated by your daily earnings.

For example: Zach suffers a brain injury and other serious injuries in a truck accident. He suffers $300,000 in economic damages. He suffers physical pain from his severe injuries for 180 days after the accident. Before the crash, he was earning $200 per day. Based on the per diem calculation, his pain and suffering damages are estimated at $36,000 ($200 times 180). A fair settlement amount would then be $336,000.

Shared fault reduction

If you were partially to blame for the accident, your compensation can get reduced. Depending on the state where the accident happened, your award can be dropped by your percentage of fault or eliminated completely. The difference depends on your state’s shared fault rules. That reduction should influence how much compensation you ask for.

Most states use comparative negligence for shared fault situations. In these states, the jury in a personal injury trial will assign a percentage of fault to every party in the case. As the victim and plaintiff, your compensation will then be reduced by your percentage of fault.

States that use comparative negligence rules for shared fault accidents fall into 2 categories:

1. pure comparative negligence states, like California,¹ that always reduce your compensation by your percentage of fault, and
2. modified comparative negligence states, like Texas,² that bar recovery if you were more than half at fault.

A couple of states, like Virginia,³ use contributory negligence for shared fault accidents. In these states, you will be barred from recovering any compensation if you contributed any fault at all to the accident, even just 1 percent.

If you were partially to blame for the accident, you can expect the insurance company to offer less money to settle the case.

Damage cap limitation

If there is a damage cap, it will limit your compensation. If you ask for more money than an applicable damage cap allows, the insurance company will deny your request.

Damage caps are state laws that limit an accident victim’s compensation. Many only limit the non-economic damages that you can recover. Most are restricted to certain types of personal injury claims, such as medical malpractice.

California is one example. As of January 1, 2023, the damage cap statute limits non-economic damages in medical malpractice claims to $350,000 in non-fatal cases and $500,000 in fatal cases. Though this limit increases each new year.⁴

Lack of insurance coverage

In many cases, the insurance policies that cover the accident will have policy limits. This is the highest amount that the insurer will pay out. Once the insurance policy limit has been hit, you will have to look for other sources of compensation. This often requires holding the at-fault party personally liable. This makes it more difficult to recover what you are owed.

These insurance limitations should be taken into account when asking for a settlement amount.

Should I ask for a higher payout?

Once you calculate a fair settlement offer, it is often wise to ask for more. The settlement process is a negotiation, or a series of offers and counteroffers. If you initially ask for a fair settlement amount, you will either have to:

• refuse to compromise during the negotiations, or
• compromise to an amount that is lower than what you deserve.

Many personal injury lawyers ask for an amount that is between 75 and 100 percent higher than what was calculated to be a fair settlement. This number may be reduced if you were partially to blame for the accident or if there are damage caps applicable.

By asking for a higher amount in the demand letter, it creates room to compromise without undercompensating you. By asking for nearly twice as much as what might be fair, your initial demand is not so unreasonable that it fails to move the negotiation forward.

The best way to come up with a reasonable demand is to establish an attorney-client relationship with an accident attorney.

Does this just apply to car accidents or to other personal injury cases?

Asking for a certain amount of compensation in a demand letter is something that you will likely have to do in all personal injury situations. These include:

• auto accidents,
• dog bites,
• premises liability claims,
• products liability claims, and
• medical malpractice.

How can a personal injury lawyer help?

An experienced personal injury attorney from a reputable law firm can help accident victims at this stage in the process in several ways. They can:

• appropriately estimate your losses,
• make an informed judgment about the adequacy of the initial settlement offer,
• draft an effective demand letter, and
• show the insurance company that you intend to pursue the full amount of compensation that you are entitled to receive.

In many cases, you will find that the offers the insurance company is making will jump as soon as you get legal representation. This is because the insurance company has realized that you are unlikely to accept a lowball offer, now. They will have to make a serious offer to end the case before a personal injury lawsuit is filed.