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ELI5: Are Insurance Companies Bad?

ELI5: Negligence

You’ve probably heard it before: insurance companies are the worst. They’re the devil. They’re out to get you. They don’t play fair. They only care about their bottom line. Etc. You’ve probably heard the same about personal injury attorneys. But, is it true? From what we’ve seen, there’s widespread confusion about how insurance companies and personal injury attorneys work, and what they actually do for their clients. The world of personal injury and insurance companies can seem complicated and overwhelming. After all, they don’t teach you this in school. However, it’s actually pretty simple. So, much like the popular subreddit, we’re here to explain insurance companies to you like you’re five.

OKAY, EXPLAIN LIKE I’M FIVE

No, insurance companies aren’t bad, mean, or evil. However, that doesn’t mean that they’re looking out for you or what’s good for you either. Insurance companies charge their customers money, called a “premium.” The premium is the money that the customer pays the insurance company every month, every six months, or every year. You can think of the premium as the cost of the insurance. If an insurance company thinks you’re more likely to be in an accident, you may have higher premiums than you would if the company thinks you’re less likely to be involved in an accident. The policy limit can also affect the cost of your insurance. A policy limit is the maximum amount of money your insurance company will pay if you do something that hurts someone else, like cause a car crash. For example, if your policy limit is $50,000, that means your insurance will not ever pay any more than  $50,000 for an accident you caused.

WHEN ACCIDENTS HAPPEN

car accident can easily cause thousands or hundreds of thousands of dollars worth of damage. The problem is that most people don’t have the kind of cash needed to pay for it. That’s why insurance companies exist. People pay insurance companies a monthly premium. In exchange for a monthly premium, insurance companies agree to pay for all the damages associated with a car accident up to the policy limit. When an insurance company’s client causes an accident that results in an injury, the insurance company will offer the injured party money to pay for it. This is called a “settlement.” The settlement money is supposed to pay for the injured party’s medical bills, injury-related expenses, and other damages. However, settlements don’t always cover all expenses. Remember, insurance companies are a business and businesses try to make as much money as possible. This means that the insurance company will settle claims for as little money as they can. If they offer you a settlement, it may not cover all of your expenses.

WHEN THE SETTLEMENT CHECK DOESN’T COVER EVERYTHING

 This is where personal injury attorneys come in. If the insurance company offers you a settlement that doesn’t cover all of your expenses, a personal injury attorney can negotiate with the insurance company to help you get a higher settlement offer. They’ll start by sending what’s called a “demand letter.” A demand letter is where personal injury attorneys put together all the facts and evidence about your case. It may include things like photos of the accident, medical records, and medical bills. In a demand letter, a personal injury attorney is trying to prove to the insurance company that you deserve a settlement check that covers all of your injury-related expenses and damages, and “demand” that they pay.

PAYING FOR A PERSONAL INJURY LAWYER

If you’re thinking you can’t afford a personal injury attorney, think again. Personal injury attorneys usually give free consultations before they take a case. Sometimes, the first settlement amount the insurance company offers is the best offer you are going to get. By offering free consultations, personal injury attorneys have an opportunity to tell clients to take the first settlement offer without charging the client. If a personal injury attorney decides that they can help you get a larger settlement, the personal injury attorney will most likely work for you on what’s called “contingency.” This means that you don’t have to pay them until you get a settlement check or judgment in your favor. Usually, the personal injury attorney is paid for what they did for you by taking a percentage of your settlement check or judgment as payment. 

GOING TO TRIAL

A judgment is sort of like a settlement check. The difference is that a settlement check is something the personal injury attorney and the insurance company have agreed upon through negotiation. On the other hand, a judgment is something that a judge has ordered the insurance company to pay the injured party after the case has gone to court in a lawsuit. This is called a “trial.”  The vast majority of personal injury cases don’t go to trial. But, when a personal injury case goes to trial, and the injured party wins, the money that the insurance company pays the injured party is called the judgment. Much like a settlement check, a portion of the judgment goes to the personal injury attorney, a portion goes to your medical bills, and hopefully, there will be a little left over to pay for your other damages.

Close up of a quarter and a penny.

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