Tax Considerations Car Insurance Review Resolutions

Tax Considerations Car Insurance Review Resolutions

January 2023 Newsletter

Rana Law Group Newsletter

In this issue:

  • Tax Considerations for Injury Cases
  • Car Insurance Review
  • Good Luck with any New Year’s Resolutions!

Tax Considerations for Injury Cases
Clients frequently ask if the money received from an injury case is taxable.  Many are happy (and surprised) to hear (according to tax law, specifically section 104) compensation for physical injuries or physical sickness is considered tax-free!  Physical injuries comprise most injury settlements/judgments so this is not an issue for the majority of people.  This is great and welcome news for my clients who can simply deposit their settlement check without fear of having to pay taxes on the (very hard-earned) money.However, there are some notable exceptions which are taxable:

  1. Punitive damages, which may be awarded by a jury to punish bad behavior by a defendant, are always taxable unless the case involves a wrongful death.
  2. Post judgement interest, which occurs when a jury verdict is awarded and the insurance company incurs interest on the judgement before agreeing to pay.
  3. Emotional distress damages are typically taxable.  For example, if someone sues their employer for emotional distress due to discrimination or sexual harassment, the settlement or verdict would be taxable.  If the damages flow from physical injuries or physical sickness, however, the money becomes tax-free.
  4. Economic losses (property damages, lost wages or business income) are also considered taxable UNLESS it is shown the money replaced lost or damaged property.

Overall, these rules can be difficult and confusing to interpret/navigate perfectly which is why we recommend reaching out to a tax professional if audited.  If applicable, a tax/financial professional can also help with structuring money in order to eliminate or minimize tax liability.  While getting money in an injury case presupposes something bad happened to the individual, hopefully knowing the individual will not have to pay taxes on the money obtained adds a little less insult to the injury!

Car Insurance Review
In the August newsletter, I recommended everyone review their homeowner’s insurance coverage for flood coverage due to the heavy rain in our area.  Every year, I recommend my clients review their car insurance coverage to ensure they have adequate coverage in case something bad happens.  The easiest way to examine coverage is to take a look at your policy declaration (“dec” for short) page.  Below is a good example of what a dec page looks like, along with the definitions of coverages below the chart:

Uninsured Coverage: 
In Missouri, if you have auto insurance, you automatically have $25,000 in uninsured coverage.  In Illinois, it is optional (extra).  I encourage everyone to increase this coverage because there are a staggering number of uninsured drivers on the road.  Typically, it is not too expensive and avoids a situation where the maximum recovery is only $25,000, especially if you or a loved one has catastrophic injuries.  I recommend increasing this coverage to $100,000 or $250,000, especially if the premium increase is small.  While you cannot control what other drivers choose to do with their insurance decisions, purchasing extra uninsured coverage provides that added security blanket just in case something bad happens.Underinsured Coverage:
Underinsured coverage is different than uninsured coverage.  Underinsured coverage comes into play if you get hit by someone who does not have enough coverage but your damages exceed the available coverage from the at-fault party.  In this scenario, your insurance company steps in and provides additional coverage, hopefully making you whole for your damages.  I recommend getting as much coverage as possible because the cost of this insurance is fairly inexpensive relative to the value it will provide if you (or someone covered under your policy) need(s) it.

*Note: Some insurance carriers write policies that deduct the amount recovered from the at fault driver from the underinsured coverage amount.  For example, let’s say you have $50,000 in underinsured motorist coverage and the at fault driver also has a $50,000 policy.  In this scenario, some of these policies determine you are not “under”-insured and exclude coverage (effectively only kicking in if the at-fault person had $25,000 in coverage, in which case it would only provide $25,000 in coverage).  I think this is exceedingly misleading because most people are led to believe they have $50,000 EXTRA coverage when, in reality, they do not.  These policies are typically enforced by the courts because it is a contract and, unless there is some ambiguity in the agreement, courts assume people understand what they agreed to in the contract.  While I hope insurers are hit with a class action lawsuit at some point for what I feel is a deceptive business practice, until then, it is important to know exactly what is in your policy and for what you are covered.  Ask your insurance salesperson if this applies to your policy and, as always, feel free to bring us your policy for a free review!

Medical Payments Coverage:
Medical payments coverage is no-fault coverage that pays for medical bills, regardless of whether an accident was your fault or someone else’s fault.  For instance, if you are driving with a passenger and you accidentally  rear-end someone else (meaning it is your fault, hence the no-fault aspect), if you and your passenger are injured and incur medical bills, your medical payments coverage will cover the medical bills up to your coverage.  This is useful when an accident is your fault OR if it is someone else’s fault but you are waiting for the at-fault insurance company to make a lump-sum settlement at the end of the case.  Your medical payments coverage can provide money to pay for bills to avoid going to collections if you are unable to pay those bills.

Typical coverage amounts are $1,000-$10,000 but I have seen as much as $25,000.  Many people do not have this coverage because insurance salespeople cut it out as a way to provide a cheaper quote for your insurance premium.  However, this is some of the cheapest, biggest bang for your buck coverage available.  Some of the people who have it do not know what it is and do not use it, even when it applies.  Some of my clients who begin the process through their insurance and then come to me later get frustrated because their own insurance company did not advise it was available and could be applicable to their situation.

I am happy to do a free review of your insurance coverage (auto/home/umbrella) to make sure you are getting the best value and the correct coverage to protect you and your family should something happen.

Good Luck with any New Year’s Resolutions!
Good luck to everyone with their New Year’s resolutions!  While the value of the tradition is hotly debated each year, the tradition is strong within our office.  The resolutions from the Rana Law Group team:Tarun – I have multiple: Say “no” more frequently.  2022 was a busy year professionally.  2023 will be busy but, hopefully, by saying “no” sometimes, I can avoid burning out which is very common in the legal field.  My fun ones are to log some sort of workout every single day and read a few fun, non-law related books again!
Sarah – Just survive!
Paul –  1080p.  In all seriousness, I am on a continual path to improvement so I have too many issues to limit them to an annual list of resolutions.
Brittany – Make one new recipe each week.

Case Referrals  

From time to time, clients call and ask which type of cases we handle.  My practice is built on referrals from satisfied clients.  I know that if I work hard and do a good job for my clients, they will tell their friends about me.  The best compliment from a former client is that client entrusting me with the potential case of their friends and family.  Our office specializes in the following cases:

  1. Personal Injury (auto collisions, trucking, motorcycle, slip and fall)
  2. Work Injuries
  3. Traffic tickets and DUI/DWI

If you know someone that meets these criteria, please have them call my office.  If someone does not quite fit the above criteria, please still have the prospective referral give me a call as I can usually help them find the right attorney via a referral.

Share the Love – Reviews

Thank you very much to everyone who already left a review, we appreciate it!  If you have not left one and have some kind words, I would appreciate the time.
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  2. For Facebook: please “Like” and “Follow” the page and then click on “Reviews” on the left-hand side
  3. For Avvo: click on “reviews” and then “Review Tarun Rana”

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