Should the Time Value of Money Effect My Decision to Accept a Settlement? (Part 2/3)

Posted on December 2013    

A motion that the two cars colliding is referred to as an “accident.” The fact that the injured party was on the way to her daughter’s piano recital—insurance company wants it out. The injured party had a receipt for Bojangles’s and a bag of food in the floorboard of the car just minutes before the collision—insurance company wants it in to show the injured party wasn’t paying attention. This is just some of what is to be expected—assuming of course, all witnesses are at the exact address, job and phone number as before, the responding officer has moved or been promoted, and no evidence has been spoiled—a perfect world scenario.

This is a process. So, the process can last as long as either party desires. Oh, and earlier the experts I mentioned—each expert will be used to give opinion for different issues of material fact. For example, one accident could have several experts.

The rain caused the accident or made it worse. That would likely need an expert. An expert on—the type of tires, the type of vehicle, the physical landscape, sufficient traction and on and on. These are generally to show causation.

Next let’s move to the damage to your vehicle. No, let’s not. You get the picture. Now consider the bodily injury you incurred from the incident. How has your future enjoyment of life been depreciated as a result of the accident? Well, that requires experts—lots of ‘em.

So now, let’s go back to that part of the process where your attorney has secured what he or she believes is the best offer for your injuries. I will attempt to use numbers so be patient. I have $5 today. What is the value of my $5 three years from now? Let’s assume that we could invest that $5 in a secure account that applies compound interest. We’ll say the interest is calculated on an I/Y of 12 at 4%. I use these numbers because they’re common right now even at most banks. At the end of three years, I will have $5.64.

From another standpoint, let’s say I don’t want to accept that offer because I think my damages are closer to $15.  Okay, so what is the present value of $15 that I will get three years from now? The same inputs give you $13.31. So, the settlement offer means I will get $5 right now, which in three years if invested will be $5.64.  By that same token, if reject a settlement and decide to pursue my claim at trial I have $0 right now but if I recover $15 then I have $13.31 today.