How do auto insurance settlements work?

Auto insurance settlements occur when claim pay outs don't cover all damages from an accident. Lawyers may be involved to negotiate on behalf of both insurers.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Jul 16, 2021

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Here's what you need to know...

  • Car insurance settlements cover you when your insurance was not enough.
  • You have the right to seek legal help if you are sued by a plaintiff in an accident.
  • Settlements are out-of-court proceedings that attempt to negotiate an amount both sides can agree to.

Having car insurance on your vehicles is the most important step you can take to guarantee that you will not have any out-of-pocket expense for an accident, even if it is your fault.

But, sometimes the amount needed to repair your car (or the amount required for injuries others sustain in the accident), may be more than the amount your insurance will cover. Therefore, it essential to get an insurance policy that will cover more than the minimums. It pays to shop around.

Likewise, if you are the victim and the accident was not your fault, you have a right to seek legal help and to demand an insurance settlement when the defendant’s insurance was not enough to cover your loss.

Sometimes the other party may also take legal action or sue you to receive damages due them in a court of law. These kinds of cases arose when the insurance money was not enough to cover injuries or damages sustained in the accident.

In these cases, you may have the option to go into negotiations for an insurance settlement. Most legal actions of a civil nature are settled out of court and auto insurance settlements aren’t an exception.

The goal of any civil case is a monetary award, so the negotiation process is for the purpose of deciding on an amount with which both parties can agree.

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What is an insurance settlement?

An insurance settlement is an action taken on by the insurance companies with the help of personal injury attorneys, which relies on a mathematical formula to estimate the amount of damage or injury done.

An insurance settlement is negotiated between two parties to determine a reasonable amount of money to give up the legal action you have taken or plan to take against the other party.

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Documentation process

You will need to document everything that you think will have a bearing on your case, including police reports, witness accounts, and any other peripheral information and documentation that could affect the outcome of the settlement.

The documentation that you will need to proceed with an insurance settlement includes the following:

  • Facts about the accident
  • Witness reports
  • Police reports
  • Medical records that show the injuries received
  • Medical bills and statements
  • Statements about loss of income
  • Documentation of any other monetary loss that was directly due to the accident

The insurance adjuster’s role

Most people are familiar with the insurance adjuster’s role when it comes to fender-benders or other minor accidents. But what is his/her role in the insurance settlement process?

The insurance adjuster serves as a reality check as the opposing sides are discussing the accident, the amount of damage and injury incurred on the guiltless party, and what amount should be awarded. Remember the goal is to keep the case out of court proceedings.

The insurance adjuster keeps people focuses on the facts of how much something costs and how much damage was done, which provides a way to keep focused on how much is a realistic amount to award the plaintiffs.

The insurance adjuster also serves as a resource when the parties of the accident have questions on the monetary value of property or damage accountability.

The negotiating process can sometimes be handled in one meeting, but often it may take more meetings to reach a settlement.

When should you demand an insurance settlement?

Timing is important when it comes to auto insurance settlement claims. You will want to make sure that you can present your case in a way that includes all of the information and documentation needed to present your full case or list of expenses.

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Timing Is Critical

If you are still in medical treatment when you make your claim, for example, you may not know what the total expenses will be. You may still incur further expenses from further medical procedures or tests that may not be calculated yet.

Therefore, it is best to wait until you are finished with your course of treatment so that all of the documentation can be brought to the table. Doing so will get you the most monetary award possible to cover all of your expenses, rather than just part of them.

Steps Involved in an Insurance Settlement Proceeding

– Collecting Evidence

If you are involved in an auto accident that involves injury or damage and which insurance will not cover on its own, you need to start collecting evidence toward your case.

This documentation will serve as the needed information that lawyers and insurance agencies will use to make a determination of the amount needed to cover the loss.

Consult an attorney

You will want to contact an attorney that you trust to represent you in your settlement insurance claim. They will be your advocate through the process, and they can help you get the best settlement amount for the loss you suffered in an accident. Remember to include attorney fees in your documentation of expenses.

Make a demand for settlement

You and your attorney will need to file a formal order asking for a settlement in your insurance claim.

Lawyer-to-lawyer settlements

In some cases, your attorney may call the defense attorney of the other party and make a settlement over the phone. They will discuss the specifics of the case and discuss what would be a reasonable amount of settlement. If an agreement cannot be reached by the attorneys, then a hearing or negotiation meeting will occur.


Additional help is sometimes offered by the courts to help you settle the case. A mediator can be assigned to your case to provide an intermediary to hear both sides and attempt to help the parties work it out.


Once you agree to an amount proposed by the defendant’s lawyer and insurance company, that becomes that final settlement amount, and it cannot be changed. So make sure the amount proposed is more than enough to cover all of your expenses.

Comparing Insurance

In conclusion, you should first make sure your current insurance covers more than the minimums. Also, consider whether you might be involved in an accident where the other person was uninsured or underinsured.

What would happen in such cases? In most cases, it would end up in a settlement situation. If you have been the victim of an accident that is not covered by the insurance, you have a right to demand a settlement.

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