Many personal injury cases settle without going to trial. This form of dispute resolution is common because it usually serves the best interests of all parties involved.

Settlement negotiations are often faster than trials. They also tend to consume fewer resources. However, that does not mean that settlements are simple. They are still highly formal and binding agreements with many details to consider.

Settlement overview

As explained on FindLaw, a settlement is an agreement between an injured party and a responsible party. In a case based on a car accident, for example, a plaintiff might demand that the defendant pay for medical bills, counseling and repairs to a vehicle. If the defendant agreed to the terms in a formal, legally binding manner, the court would consider the case settled.

In most cases, attorneys prepare to go to trial while doing everything they can to resolve disputes by alternative methods. Most defendants quickly see reason when presented with the facts, and do not need a court to intervene to make them take responsibility.

Payment options

Settlements for serious injury cases typically involve large amounts of money. This poses challenges, financially speaking — many injured people find it burdensome to deal with such huge sums. As a result, most settlement agreements involve specific directions on how and when money changes hands.

One common scenario is a combination of a lump sum, to pay for immediate costs and outstanding debts, and an annuity, to pay for the remainder of the losses as they occur over time. As explained by the IRS, one of the benefits of annuities is tax exemption: Money coming from qualified personal injury settlements is typically not subject to normal annuity income taxes.

Insurance companies know these financial systems intimately. Injured people should be on guard during negotiations to make sure that they not only get the amount they need, but also that they have access to the funds when necessary.