After a car accident, insurance companies use a formula to estimate how much compensation you deserve. This formula is usually your economic damages, plus your economic damages times a multiplier of between 1 and 5.
The multiplier is used to estimate your non-economic damages, and is based on the severity of the crash and your injuries.
How does a car accident settlement calculator work?
An auto accident settlement calculator estimates how much money you need in order to recover from the crash. It works by
- adding up all of your economic damages and then
- estimating your non-economic damages.
Insurance companies have come up with the formula based on the outcomes of hundreds of thousands of car accident cases in the past. The formula predicts how much a jury would award you, should you take your case to trial.
The most common formula is fairly simple. It looks like this:
Economic damages + (economic damages x multiplier).
Your economic damages are any losses you sustained that can be easily calculated in a dollar amount. They generally include:
- medical bills,
- estimated future medical expenses, like ongoing physical therapy,
- lost wages and other lost income,
- reduced earning capacity, and
- property damage to your vehicle.
Sometimes, economic damages are referred to as “special damages.”
Once your economic damages are added up, they are multiplied to estimate your non-economic damages. These are losses you have suffered that cannot be easily distilled into a dollar amount. They include:
- physical pain,
- mental suffering,
- emotional distress,
- loss of consortium, and
- loss of enjoyment of life.
Sometimes, these types of damages are referred to as
- “general damages” or
- “pain and suffering damages.”
The number used to multiply your economic damages to estimate your non-economic damages will depend on how much the crash impacted your life. This usually mirrors how badly you were hurt. The multiplier can be as low as 1 and as high as 5. The more severely you were hurt and affected by the crash, the higher the multiplier will be.
For example: Josh is in a rear-end collision. His motor vehicle is totaled and he suffers some moderate whiplash, but aside from that, he is fine. Between his property damage, medical treatment, and lost earnings, he has lost $30,000 from the accident. The insurance adjuster assigns a multiplier of 1.5 to estimate that his non-economic damages are $45,000 ($30,000 times 1.5). Based on this calculation, Josh deserves $75,000 in compensation ($30,000 + $45,000).
For example: Cheryl is in a serious T-bone accident. She suffers serious injuries. She has a spinal cord injury that leaves her partially paralyzed. It also leaves her with a significant disfigurement. Her economic damages add up to $1.5 million. The insurance assigns a multiplier of 5 to her case. Cheryl’s estimated non-economic damages are $7.5 million. Based on the multiplier formula, Cheryl deserves an estimated $9 million to recover from her accident injuries.
Will auto insurance companies always offer the estimated amount?
Just because the multiplier provides an estimated amount does not mean that the insurance company will offer it, though. Insurers are for-profit companies. They protect their revenue by paying out as little as possible to settle insurance claims and personal injury claims.
They are likely to make a settlement offer that drastically undercompensates you. Adjusters will often justify the low amount by using a multiplier that does not represent how much the accident impacted your life.
Ensuring that you receive the compensation that you are entitled to receive often takes the legal advice of a personal injury lawyer.
Why do insurance companies use a multiplier method?
The multiplier method is used to estimate the value of your car accident claim. It tries to predict how much a jury would award you, should you file a lawsuit and take your claim to trial. The way personal injury law works, only a trial verdict can definitively say how much your case is worth.
However, taking a case to trial is expensive, stressful, and very time-consuming for both sides. Settling for a mutually-agreeable payout is usually a better option. The multiplier method helps to facilitate this by estimating what the jury would award.
Personal injury attorneys also use the multiplier method to see what a fair settlement amount would be for their clients. By establishing an attorney-client relationship with a car accident attorney from a reputable law firm, you can maximize your personal injury settlement amount.
Are there any other accident settlement formulas?
Yes. Another way that some insurance companies will estimate the value of a car accident claim is with the per diem method.
Rather than multiplying your economic damages by a number between 1 and 5, the per diem method pays a set amount of money for each day you experience pain and suffering. This estimates your non-economic damages. It is then added to your economic damage total, just like with the multiplier method.
The daily rate is often calculated by your daily earnings, prior to the accident.
For example: Mitch suffers a concussion in a truck accident. His economic damages are $50,000. He suffers symptoms from the brain injury for 90 days. Before the accident, he earned $300 per day. Under the per diem method, his non-economic damages are estimated to be $27,000 ($300 times 90). This puts an estimated fair settlement amount at $77,000.
Car accident lawyers may be able to increase the settlement value of your case by using the injury settlement calculator that works the best for your circumstances.
What is the difference between economic and non-economic damages?
The main difference between economic and non-economic damages is how easy they are to put into a dollar amount.
Your medical expenses are a type of economic damage. You can see your medical expenses on the bills that you received from the doctor’s office, clinic, hospital, or physical therapist. Even economic damages that are still conjectural, like anticipated future medical expenses, are still already in a dollar amount.
If you are reasonably likely to need a particular surgery in the future, the costs for that procedure will be in dollars and cents.
Non-economic damages, on the other hand, are not easy to state in a dollar amount. When asked how many dollars it would take to compensate someone for the pain of a broken arm, different people will give different numbers.
In some cases, they can be extremely different numbers. Because of this wide variety, it is hard to know for sure the value of your non-economic damages. They can only be estimated.
Are there factors that can reduce my estimated auto accident settlement amount?
Yes. If there is any indication that you were partially to blame for the car crash, the insurance company will reduce its average settlement offers. There may also be damage caps that will reduce the offer after a severe accident.
Each state has a law for when the accident victim bore some responsibility for the crash. These laws are called shared fault rules. They fall into 2 categories:
Both require the jury to apportion a percentage of fault on all of the parties involved in the personal injury case.
A few states use contributory negligence. In these states, if you were responsible at all for the crash – even just 1 percent to blame – you will be barred from recovering any compensation.1
If your accident happened in a state that uses contributory negligence, you will likely receive extremely low settlement offers if there are any signs that you even partially contributed to the crash.
Most states, however, use comparative negligence rules. In these states, your award at trial would be reduced by your percentage of fault. States that use comparative negligence rules are split into 2 different groups:
- states that reduce your recovery by your percentage of fault, no matter how high,2 and
- states that bar you from recovering anything if you were more than half at fault.3
If the accident happened in one of these states, the settlement offers that you receive will reflect the potential reduction in the award from shared fault laws.
Are there damage caps on car accident cases?
In a few states, there are damage caps on car accident claims. These are statutes that limit how much compensation you can recover. The limitation is often restricted to non-economic damages. If the crash happened in a state with such a law, the settlement offers that you will receive will take that into account.
An example of a damage cap is a Mississippi law. This law limits non-economic damages in all civil claims except for medical malpractice to $1 million.4 This includes for car accident lawsuits.
Most states, including California,5 do not have damage caps for car accident claims, though.
- See Coutlakis v. CSX Transportation, Inc., 796 S.E.2d 556 (2017) (Virginia).
- See Li v. Yellow Cab Co., 13 Cal.3d 804 (1975) (California) and Florida Statutes 768.81.
- See Texas Civil Practice and Remedies Code 33.001.
- Mississippi Code Annotated 11-1-60.
- Howell v. Hamilton Meats & Provisions, Inc., 52 Cal.4th 541 (2011).