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Question DetailsAsked on 4/24/2017

Enter your question...what does a settlement pay on a accident

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1 Answer


You did not say what kind of loss you incurred - personal injury, physical item loss/damage, house damsage, etc - so following is a bit generic.

What a settlement pays depends on a LOT of things of course:

1) a "settlement" as such, meaning an agreement out of court or with an insurance company, can have any terms which are legal - whatever the two parties will agree to. Ditto to a settlement in court or a judgement by an arbitrator or by a jury or judge decision in a lawsuit, though there are more limits on the type and forms of payment. May or may not also include splitting of the amount with the winning attorney (if on a contingency engagement) or the winning party having to pay his attorney out of the settlement or judgement proceeds.

2) if you mean an ordinary insurance claim settlement, generally the responsible party's (or your's in case of most homeowner's insurance claims for personal accidental damage or act-of-god damage where another party is not responsible) insurance company adjuster (their person who inspects and estimates the value of the loss) comes up with an amount that they say the damaged item or repair is worth (the "adjusted value" or "adjusted amount" in insurance parlance) which they offer to you - or they base it on damage estimates you collect like from body repair shop or roofer or whatever to pay for the damage repair or replacement.

Sometimes, like for water and storm damage, they work with a contractor which they commonly do business with and that you agree upon, to come up with a bid which is then used (after any negotiation between adjuster and contractor) as both the adjusted value of the damage and the bid amount.

You then have the options of agreeing to that adjusted amount, arguing it and trying to convince the adjuster he made an underestimate and needs to refigure (which may involve getting your own public adjuster or appraiser to come up with a competing valuation), or refusing it and suing (or going to arbitration if policy requires thator you choose) the insurance company for more coverage. [If once you get into the repairs if unseen damage pops up - say more spread of water damage than originally estimated - there are procedures for claiming an adjustment to the claim if you have not already signed off on a "final" settlement amount]

3) Rarely can you take the offered payment and then sue anyone for more to get more money - basically that sort of "double-dipping" would be allowed only in case of insurance fraud by the insurer. Sometimes you can take an initial payment from your insurer then sue another party for responsibility for it (like in auto accidents for instance) - but generally whatever you recover from another party has to first be used to pay back your insurance company for anything they paid out to you.

4) In pretty much all insurance cases, any "settlement" you receive will have your deductible and any co-pays removed from it per your policy. In some cases and states, even if the "other" party's insurer pays up, you may still be liable for paying the deductible - especially in some no-fault states.

[The deductible is essentially a self-insurance - the amount you agree to pay up-front on any claim - so if claim value is less than the deductible you pay everything, if more then you pay the deductible and the insurer pays the remainder up to the adjusted amount of the loss, but not more than the total value of the item (like a car or piece of furniture) and not over the policy limit. A co-pay is where you agree (usually only on health insurances) on individual as opposed to business policies) to, after you have paid the deductible, to also pay a percentage of any further loss, basically sharing the insurance risk with the insurer for the remainder of the claim amount.]

5) On physical possession/property (as opposed to personal injury or personal liability) insurance claims, there are also two common types of coverage - going under different names with different companies and states, but generally "replacement value" and "depreciated or amortized value". The first pays you what it costs to repair/replace the damage item with new materials to make it fully functional as before - say to repair a piece of damaged furnitureor to replace a storm stripped off roof for instance - minus your deductible and any co-pay. The second type takes into account the fact the item was used so had already gone through part of its life, so the insurer only pays for the portion of its remaining life - the "used" value for furniture or a car for instance, or for say a roof or siding replacement pro-rates the payment based on the remaining life.

For instance, say a tornado blew your 10 year old roofing off to the point where the adjuster agrees you need totally new roofing and that the job will cost $10,000 - and let's assume you and your contractor agree that is a reasonable payment, and that you have a $1000 deductible on your homeowner's policy. With replacement value insurance (which has typically about 10-25% higher insurance premiums), you would get the new roof - they would pay the $10,000 MINUS your deductible of $1000 - so the insurer would pay $9000 and you would pay the roofer the $1000 deductible out of your pocket. [The "deductible" is basically the amount ofeach individual lossclaim that you are self-insuring for - so any claim not exceeding that amount comes totally out of your pocket, meaning any claim for less than that amount pays you nothing but can increase your premium for the future 3-5 years commonly.]

Now - if you instead have a policy that pays depreciated or amortized value, lets assume the same facts, and that you and the insurance company agree the roof is 10 years old and was originally a 25 year design life roof - though arriving at that agreement is not always so easy, especially if a previous owner has reroofed or resided or such but you do not have evidence of WHEN it was done, or the actual rated life of the materials. In that case, the roof is presumed to have 15/25 of its life remaining at the time it was destroyed - so they would take the $10,000 reroof cost and multiply by 15/25 = $6000. That is what they say the adjusted value, or the remaining value in the roof, was. They would then pay $5000 (that remaining value minus your deductible), and you would be responsible for the remaining $5000 - the $4000 for the portion of the roof's life which was already "depreciated" or "amortized" as of the time of the loss, plus the $1000 deductible. Of course, different policies sometimes have variances in how depreciation or amortization and deductible are figured, so you need to read your policy terms, but this is the essence of how it works.

Generally speaking, you can get replacement value or amortized value coverage on homes and such, and on personal possessions (replacement value sometimes only on a rider or PAI policy) - autos and boats and recreational equipment generally is amortized value only unless insured as a collectible and driven only for shows and rallys and such, for show purposes.

On physical items, they use published books listing valuation to assess the depreciated value of the item - Kelly Blue Book for cars for instance, and other similar online (continually updated) or published hardcopy (usually updated annually) guides for collectibles and antiques and such.

For items of unknown age or expected life span, there are IRS and industry standard tables for the expected life of various items - down to around 2-5 years for some electronic devices and most clothing for instance, to commonly around 5-10 years for many appliances and vehicles and general household furnishings and such, 15-25 years for some major appliances like furnaces, commonly 20-30 years for many outdoor items like drives and fences and pools and such, to around 40-50 years or occasionally more for permanent improvements like buildings and permanent landscaping and such.

One other complexity - if a physical piece of personal property (furniture, car, etc) is damaged beyond reasonable repair, they may instead of repairing choose to pay you for the item's value before the damage (at replacement or amortized value as applicable) and then take the item and sell it for scrap or such to recoup some of what they paid in the claim. If you want to keep the item instead, you have to buy it off them for that scrap/used/salvage resale value, plus it will be noted as junked and be uninsurable in the future. This is common with cars - where the repair cost is more than the value of the car so they "write it off" and label the title as "salvage" or "scrap" even though it might still be fully driveable and functional with just say body or paint damage. New cars damaged by hailor sandstorm (even if it only the paint and glass is damasged) are commonly written off this way even though total repainting and new glass might only be 1/4 the value of the new car - because after the repair its now "damaged" or "rebuilt" value is less than the cost of the repair. In such cases, or where they say it is trashed but you want to repair it, they will generally not pay more than the pre-damage value of the item.

For heirlooms / collectibles /antiques and such which are damaged but not destroyed they will generally pay for the repair or replacement with equivalent item, and under some conditions (basically only if specifically insured as a collectible or antique or such under a rider or separate PAI policy) will pay up to the collectible/antique value before the damage - or the rider limit, whichever is less.

If this was not quite what you were asking, if you give a bit more detail about the type of loss you have and general deductible/copay terms of your policy I might be able to help more - respond back using the yellow Answer This Question link right under your question.

Answered 3 years ago by LCD

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