Evaluating whether to get an advance on your settlement is not a simple or straightforward decision. This article examines some of the factors people should consider when making the decision.
Factor 1: How much in fees and interest do I have to pay for the advance?
Getting an advance on your settlement typically costs between 30 - 60% a year, which is often more expensive than even credit card debt. One of the reasons it’s more expensive than credit card debt is that these advances are non-recourse, meaning that if you don’t win your case, you don’t have to pay your advance back. With credit card debt, you have to pay it back no matter what. Not all companies that give advances are equal. Your attorney may be able to recommend companies that have the best rates and terms. Here is an analysis we did in June 2022 amongst a handful of well known companies.
Factor 2: How much money should you get advanced?
The rule of thumb in the industry is that your total advances shouldn’t exceed 10% of the value of your case. That means if your settlement is expected to be $50,000, you shouldn’t expect to be able to receive more than a $5,000 advance.
But, just because you may be able to receive a $5,000 advance doesn’t mean that you should as the more you take the more interest you must pay.
Factor 3: Are there personal expenses that need to be paid immediately?
If you're like the 56% of Americans who can’t come up with more than $1,000 in the case of an emergency, but need to pay for rent, food for your family, and other expenses that have stemmed from your accident, that’s as good a reason as any to get an advance. It’s terrible that people who were innocently injured in an accident have to choose between paying a high interest rate or paying their rent, but that’s the current civil justice system for you. Only you know your situation and the tradeoffs between paying a high interest rate compared to the benefit of being able to pay essential bills.
Factor 4: Is the amount you pay in interest lower than the amount you’d otherwise save if you took the advance?
We’ve seen lots of people settle their cases for far less than they’re worth with the insurance company because they’re desperate for money. And that often costs you far far more than even a high interest rate. If you think about selling your case as selling 100% of your case to the insurance company and taking an advance as selling 10% of your case to a financier, you can justify paying a higher rate for the latter if it saves you from having to sell the former for pennies on the dollar. We built a cool calculator to demonstrate this tradeoff for our clients.
Factor 5: Can you use money to pay health insurance deductibles so you don’t have to take on expensive medical liens
If you have health insurance or can get medical treatment for a small deductible, it may be a good use of a cash advance to pay the deductible associated with health insurance for your treatment. That’s because the alternative is often to take on medical liens that can cost far more than the interest on the advance would cost. This analysis in particular is complicated and your attorney will need to help you evaluate these options.
Factor 6: Do you have any other options to get money while you’re waiting for your case to settle?
As discussed above, one advantage of a settlement advance is that you’re not personally responsible for paying it back as debt if your case isn’t successful. But, in truth, most cases are successful and so paying more for that right may not be the best option for you.
Ideally, people would have other options for getting money, including borrowing money from friends and family (Mighty can even work with those family and friends to pay them directly from the settlement if that would make them feel more comfortable), applying for grants you may be eligible for, or even putting certain bills on your credit card while you’re waiting for your settlement.
There are many good reasons to get an advance on settlement. So attorneys who universally advise their clients are doing a disservice to their clients. But, the decision to take financing is not straightforward and may end up being very expensive for clients eating into their settlement. So we advise our clients to be thoughtful and work closely with them to understand these factors and more.
Mighty is using its data-driven, nerdy know-how to help people after an accident. Mighty Law lawyers charge lower rates and commit to a Code of Conduct that forbids behaviors typical among billboard injury attorneys, such as quid pro quos for referring people to their doctor friends. Plus, you can work with a Mighty Law lawyer at no cost for up to 60 days if no lawsuit or demand letter is filed.
Written ByMaly Ohrenschall
VP of Customer Experience
About the author
Maly is a seasoned professional with over 15 years of experience in the insurance sector, specializing in multi-line claims and customer service for personal injury cases. As the leader of Mighty’s Client Experience team, she leverages her extensive background to ensure clients involved in auto accidents receive the highest level of care and support. Maly’s expertise plays a crucial role in delivering exceptional service and fostering long-lasting client relationships.
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