What To Do With A Car Accident Settlement?

On last month’s income statement, I alluded to a couple of big checks that we were expecting to come in April, but didn’t quite make the cut. One of them dropped on May 1st. It’s a check for almost $7,000 from a car accident settlement that finally resolves a car accident that I was in about 2.5 years ago.


Recap On Accident And Injuries


Not the car that hit me, but I always thought these jaguars seemed about to pounce!

The accident was pretty straightforward. I stopped at a red light. The car behind me didn’t.  It didn’t end particularly well.  I had whiplash on the day of the accident, but have two lingering lower back issues that are going to stay with me for a very long time (perhaps indefinitely – which plays a roll in why I’m a bit afraid of the idea of pregnancy).

FWIW, we ended up using a personal injury lawyer to help settle the claim, despite our apprehensions about consulting a lawyer for real estate matters, and feel like we came out ahead for doing so.


Goals For Our Settlement Dough

We didn’t look at the accident as a way to get rich. But since the accident was not my fault (a fact that was never in question since the accident was so clear cut), we wanted help paying for expenses that my injuries were going to cost us in the future considering we had a good idea how much they cost (A LOT!) when they were acute.

After 2 years, my car insurance was tapped out on paying medical bills associated with the accident as there had been over $15,000 of them. Can I say that again? $15,000+ in medical bills. Tests on your back are freaking expensive. And don’t get me started on how much my brief ambulance ride cost the insurance company. Getting the car fixed cost the insurance company another ~$7,000. Nice reminder to have car insurance, right?

With that in mind, here are our current goals for the settlement money:

  • Set it aside for future health care expenditures
  • Since Mrs. PoP has good health insurance now, have it somewhere that it can grow in the meantime to keep up with (and perhaps surpass?) health cost inflation
  • Protect said growth from taxes as much as is feasible

We’ve got an idea of how we want to do this, but wanted to run it by some of our very smart readers (in particular Average Joe!) to see if this makes sense.


Our Current Idea

Use Mr. PoP’s HSA as a tax exempt savings/investment vehicle for this money.

For those not familiar, an HSA is a Health Savings Account that is tax advantaged savings account available to people in the US with high deductible health insurance plans (like Mr PoP) because those plans don’t have first dollar coverage. The HSA lets you stow away a certain amount of money each year (currently $3,250 for self-only HDHP coverage like Mr PoP has) and invest it to be used later for health care expenses. It’s above-the-line tax deductible when we deposit the money (great because we can’t itemize our tax deductions), and exempt from taxes when we take it out later as long as the money is spent on qualified health expenditures. For more details on HSA, check out the IRS’s HSA page here.

With the yearly limits on contributions, it’ll take us at least a couple years to get the money fully invested. But the plan right now is to put the money into a low cost SP500 ETF and let the money grow to hopefully beat the high rates of inflation that the health care sector is known for. This source cites that long term health care inflation rate at about 5.54%, so that’s the number we’re aiming to meet/beat.


Is It Too Risky To Put It All In Stocks?

Maybe. But we don’t expect to need to look at that money for at least 5 years. As long as I’m working this job I have good (maybe 8/10?) first dollar coverage that includes care for chiropractic and neurologic needs that arise. Now that my car insurance is exhausted from paying these bills, my health insurer is picking up the slack when my back hurts like the dickens and all we cover are $25 copays, which we pay for using pre-tax dollars from my FSA (flex savings account).

But it’s also this job that aggravates the pain in my back since sitting upright for long periods (compressing my lower back) is what hurts the most. So there’s also the hope that after I no longer sit for 9+ hours per day at a desk that I need fewer chiropractic and neurologic interventions to help with the pain. So I’m really hoping that this money lasts a while covering a few chiropractic sessions per year and the fairly expensive topical NSAID that seems to be the only non-narcotic pain reliever that helps. (Vicodin also helps, and I was in a GREAT mood when on it, but getting addicted to narcotics seems like a bad long term plan.)


We’ve run this by our tax guy (answers to questions and long term planning like this are part of the service we’re glad we pay him for), and he thinks it’s a pretty good plan to reach our stated goals for the funds.

But what do you guys think? If you had an injury settlement what did you do with the money? Does anyone have another suggestion on a plan that might meet (or exceed) the goals for this ~$7,000?

29 comments to What To Do With A Car Accident Settlement?

  • Planning for what health care might cost when you’re FI is tricky business, but I don’t know why an s&p etf doesn’t make sense. I know I should be taking advantage of an hsa at work, bit im ignorant about the rules. Right now, I have a medication every 4 weeks and all I pay is $5 each time because I have the bees knees health insurance choice. I need to figure out if that would change with an hsa…
    CashRebel recently posted..Investment Tinkering Part I: Investing In Real Estate Without Buying A HouseMy Profile

    • If your health insurance has copays that low, you might not be eligible for an HSA since (from what I understand), they’re only for plans with high deductibles and no first dollar coverage. But if you do have regular expenses like that, and your company offers it, you should get a Flex Account (we call it a FSA at my office). It’s pre-tax money that’s taken out of your paycheck that you can use for medical expenses throughout the year and doesn’t require you to have a high deductible health plan. The only catch is it’s use it or lose it (by the end of the year) and you can’t put it in ETF funds to grow. It’s great for expenses that you KNOW are going to happen. Less great for saving “just in case”.
      We put enough to cover copays for regular check-ups and known Rxs (and glasses, etc) in mine every year. It saves us a couple hundred in taxes since we’re in the 25% tax bracket and we put around $600 or so in the Flex account every year.

  • One word: VEGAS!!!!! AND I know the perfect, charming guy to accompany the PoP’s on their trip…..

    IF you decide not to take that suggestion, here’s my take (thanks for the shout out, BTW):

    In order you want to use a windfall to: a) eliminate debt (in your case, done); b) build reserves (in your case done); c) invest.

    If possible, the investment should be tax advantaged, so your HSA idea is wicked awesome (as I’d say if I were from the northeast….which I’m not, so I shouldn’t).

    A 5 year timeframe on the HSA means S&P 500 might be tricky. Historically you still have a checkered ratio of success here. I’d rather see 8-9 years before S&P 500 100% mix…over 10 years you nearly always came out ahead. I might split it between 2/3 S&P 500 and 1/3 something with a heftier dividend payment to lock in a more reliable return.

    What a great problem to have! Too bad it comes with back problems….I bet you’d easily give back that money to avoid the back issues.
    AverageJoe recently posted..5 Reasons Your Cash Reserve Isn’t WorkingMy Profile

    • haha, even with all the money in the world, we’re just not Vegas folks. You’ll have to go on your own!

      And too right, if we could give this money back (and then some!) to not have this pain in my ass (well, low back), we would in a heartbeat. I try not to dwell on it, but when sitting is uncomfortable and painful, it sucks sometimes.

      Thanks for the insight on the timeline/investment ideas. I guess 5 years feels like the earliest we might possibly tap into it, but it definitely wouldn’t be the whole $7K. The hope is to make it last for a long time. $700 per year would easily cover a couple of chiro treatments and a few tubes of my favorite NSAID cream purchased when family and friends go overseas. (I hear virtually the same stuff is OTC in the UK and the exact same stuff might be OTC in Canada.)

      Does that change your perspective? The other thought was a health care industry ETF, but I wasn’t sure if that could act like doubling the risk of HC inflation or decrease it.

      • I’d love to go if you’re offering the settlement money to do it! Funny…some friends just left and we were sharing Vegas stories…we’re not really Vegas people either. Too many lights. Give me a trail and some boots, and I’m far happier.

        The health care sector is going to be ravaged by reform no matter what happens. If Democrats stay in power, we’ll find out what’s really behind the new legislation, and if Republicans gain control we could see it overturned. I prefer to purchase shares in companies where I know my end game better. That said, if you think that companies will gain a profit equal to the inflation rate or above, then over time the share price should go up by a similar amount, right? I think that’s where you’re headed….

        The fact that might touch it BUT wouldn’t touch all of it makes the case again for two different investments instead of one. How great will it be at the 5 year mark to decide which investment to tap: the one that’s up or the one that could use a little more ripening? I’d still diversify the position a little more (of course, that’s because I don’t know what other resources you might take from if neither asset looks good at the time….if there’s plenty of other places to turn, then a straight S&P 500 fund gives you the “Random Walk Down Wall Street” bet that’s hard to beat if you don’t have a timeframe for withdrawal.
        AverageJoe recently posted..5 Reasons Your Cash Reserve Isn’t WorkingMy Profile

  • Brian

    There is always a chance you will never need to use that money for medical reasons and you just made a sort of backdoor IRA. I know many people who are doing this and if they have to use it for medical so be it, but most are just using it as another retirement account

    • If we never need the money for medical treatments, I will be A-OK with that result, and having a backdoor IRA funded would just be icing on the cake. Realistically, though… I have a feeling that health care is going to be an ongoing expense for us, especially if/when we leave traditional employment.

  • I’d be inclined to put the money in stocks or a high-yield account since it’s not needed immediately and hopefully you won’t need to use it for further medical costs. Sorry to hear about the effects the accident has had on you.
    Tina @My Shiny Pennies recently posted..Gift Registries: Cash or Goods?My Profile

    • While I’d love it if my back magically healed itself, the reality is that I will need continuing care and it’ll probably be a weak spot indefinitely. It’s just a matter of how much care and how soon. I’m hoping that taking care of myself will help those answers be “not too much” and “not for quite a few years”. =)

  • If the accident was not your fault, why did your car insurance pay your medical bills? Why didn’t the other person’s coverage pay those bills? It also sounds like your own insurance coverage paid to repair your car, which shouldn’t happen if it wasn’t your fault – was the other driver uninsured?

    Be careful about your own health insurance. If they have any inkling these injuries were caused by a car accident that was not your fault, they may refuse to pay. Depending on your state and your policy, they have a way out there.

    It’s also interesting that your injuries cost $15,000 and the settlement was roughly half. I’m assuming that the attorney took 33% because the case didn’t go to court, but was eligible for 50% if he did go to court – but most insurance companies will settle claims like this at double or triple the dollar amount of the injury.
    Wendy recently posted..5 Things You Should Know if You’re Filing Taxes LateMy Profile

    • It’s my understsanding that it differs much from state to state, but current Florida law says that 80% of your medical injuries in a car acccident are paid by your insurance company (this is PIP), and if you have med-pay coverage (which we do) they cover the other 20% until a claim is settled with the at-fault party. Of course, both PIP and Med-Pay are subject to different limits. My combined limit was $15K on our policy.

      Our insurance company would have sued the insurance company of the at-fault party for Med-Pay reimbursements if we didn’t settle. [I know the other insurance company reimbursed them for the automobile expenses very quickly after the repairs were complete.] As it is, our insurance company did get a portion of the settlement – not the full med-pay amount that was paid out on our behalf, though. It’s now in our insurance company’s hands if they want to go after the other insurance company for the remainder or just write the expense off. It’s called subrogation and it lets the insured (me!) get covered quickly and the insurance companies duel it out after the fact.

      Though PIP is controversial, after going through it, it was nice to have your insurance company be on your side and not have to fight to get medical treatment or bills paid. The other company’s insurance company felt like an adversary from day 1 and I would have hated having to work with them to get expenses associated with diagnosis and treatment covered.

  • I’m so sorry for your back problems. I’ve been in a couple of accidents, once rear ended and once from the side. I never went to the hospital or even a doctor, but do have odd back flare ups from time to time and I can’t help but wonder if either or both of these accidents contributed. So I would strongly advise anyone in an accident to at least get checked out by a doctor,even if you feel OK, it could come back later.

    I think HSA’s are a wonderful tool for your purposes, and how great that you don’t have to use a windfall for something like paying off a credit card.

    • Sorry to hear about your accidents, too! And you’re definitely right. I almost refused to go to the hospital, thinking I would just tough it out because I had so much work to do, but my MIL insisted that it would be tougher to get treatment covered down the road if I didn’t get my injuries evaluated ASAP.

  • I would invest it all, or pay down debt.

  • Russell

    A non-financial thought for you: Is there any possibility of switching to a standing desk at work? I’ve heard that it can help with some types of back pain.

    • I’ve thought about it, but standing is sometimes bad, too. Walking is pretty good, so maybe one of those treadmill desks eventually. But for now it doesn’t make sense with the set up of my office. My boss has been great and I have a super ergonomic chair, but sometimes I just want to lean back in a lazy boy and take all the compression pressure off my lower back. (It’s one of the reasons I like working from home so much when I can.)

  • I’m sorry to hear about your wreck. As you may know, I was rear-ended a few years ago while I was 4 months pregnant and I actually got two teeth knocked out! I had to go through 5 or 6 painful oral surgeries and dental implants. All is good now, but it was a long and painful process.

    I also got a settlement. I mostly saved mine for future medical expenses…or for whatever else may happen.
    Holly@ClubThrifty recently posted..The 5 Financial Habits that Changed My LifeMy Profile

    • Ugh, your accident sounds a lot like a good friend of ours. She had several oral surgeries after being sideswiped and still has jaw pain from it.
      Did you use any special savings vehicle to save it for future medical expenses? Just curious!

  • Depending on the amount that we got from the settlement, I would use it to pay off our mortgage. That would be a huge relief to not have to make that payment every month.
    Axe Debt recently posted..Why Student Loans Could Hurt You in the Long RunMy Profile

    • Being mortgage free would definitely be a plus, but our mortgage rate is low enough that it’s actually pretty low on the pay-off / investment priority list.

  • I would lock it up someplace safe, boring and secure and forget about it. You may need lifestyle help when you are a senior because of your back injuries. You may need someone to help doing property maintenance or house cleaning when you are much older because of the injury.

    I am Canadian so I would put it in a GIC(like a CD)ladder inside a tax free savings account and save it for when I needed help.
    Jane Savers @ The Money Puzzle recently posted..Money Quickies And Mall Smells For May 15,2013My Profile

    • Does the security of the Canadian health system come into play for you? You don’t have to worry about health cost inflation since it’s largely invisible if you guys are single payer, right?

      I hadn’t even thought about needing help when I get old… but you’re right. These back problems won’t be any easier when I’m 70 probably! =(

      • We have great health care but free home care is limited. I know a lot of seniors who only have a health care aid in 2 or 3 times per week to assist with bathing and to do some laundry and basic tidying.

        If you want your grass cut or your baseboards washed (things I did today) you would have to hire someone or rely on friends and relatives.

        So many people struggle with back issues and there is so much money to be made for the company that comes up with a fix that they will have it all sorted out by the time you are older.
        Jane Savers @ The Money Puzzle recently posted..Money Quickies And Mall Smells For May 15,2013My Profile

  • Very well-written post. You have greatly focused on almost all the issues that a person should consider in order to recover financial loss. Particularly helpful for those who don’t know from where to begin in order to hire a professional lawyer.
    coopertx recently posted..Hello world!My Profile

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  • CF

    I knew a guy who received a crazy amount of money in a car accident settlement. Spent it all on a fancy car, a motorcycle, and drugs. :p
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