When insurance companies drag out settlement negotiations or when your case takes years to resolve, you might wonder whether inflation factors into your eventual compensation. Yes, inflation can affect personal injury settlement calculations, but not always in the ways you might expect. The impact depends on the timing of your losses, the types of damages you’re claiming, and how well your attorney documents the true cost of your injuries.

The reality is more complex than simply adjusting numbers for rising prices. At Byrd Davis Alden & Henrichson, LLP, we account for inflation’s impact on your future losses and work to ensure your settlement reflects the actual cost of your recovery in today’s dollars. With over 65 years of experience in personal injury law and more than $100 million recovered for clients, we build cases that address both immediate and long-term financial needs.

How Inflation Impacts Economic Damages

Inflation primarily affects economic damages, the measurable financial losses stemming from your injury. When calculating future medical expenses, lost earning capacity, or ongoing care costs, inflation plays a direct role. Medical care inflation typically outpaces general inflation, meaning the cost of surgery or physical therapy you need five years from now may cost significantly more than the same treatment today.

Your attorney should project these future costs using realistic inflation assumptions. For example, if you need a spinal surgery that costs $150,000 today but won’t undergo the procedure for three years, that same surgery might cost $170,000 or more by the time you have it. Settlement negotiations must account for this difference to ensure you receive adequate compensation.

Lost wages present similar challenges. If your injury prevents you from returning to your job for several years, simply multiplying your current salary by the number of years you can’t work underestimates your actual losses. Your earnings would likely have increased over time through raises, promotions, and cost-of-living adjustments. Economic and non-economic damages require different calculation methods to account for these time-based changes.

The Present Value Calculation

Insurance companies often argue for reducing future damages to “present value,” a calculation that accounts for both inflation and investment returns. The logic is straightforward: money you receive today can be invested and grow over time, so you shouldn’t receive the full inflated amount now for expenses you’ll incur later.

However, these present value calculations often work against injury victims. Defense attorneys may use overly optimistic investment return assumptions while minimizing medical inflation rates. This creates a situation where your settlement doesn’t actually cover your future needs. Strong legal representation challenges these assumptions with data that reflects real-world medical inflation and conservative investment returns.

Texas law doesn’t require present value reductions in all cases, particularly for past damages already incurred. The timing of when you receive compensation affects whether these calculations apply, making it critical to have an attorney who understands these nuances.

Inflation’s Limited Effect on Past Damages

For damages you’ve already incurred, such as medical bills from emergency treatment, past lost wages, or property damage to your vehicle, inflation typically doesn’t adjust the amounts upward. You claim the actual amount you paid or lost, regardless of when the settlement occurs. If your truck accident happened two years ago and you paid $50,000 in medical bills, then you claim $50,000, not an inflation-adjusted figure.

This creates a hidden cost when settlements take years to reach. The purchasing power of the compensation you receive for past damages has effectively decreased. The $50,000 settlement payment you receive today buys less than the $50,000 you spent on medical care two years ago. This is why prompt settlement or trial resolution benefits injury victims.

Protecting Your Compensation from Inflation

Several strategies help protect your settlement from inflation’s erosive effects:

  • Expert economic testimony: Economists and life care planners can project future costs using industry-specific inflation data, providing courts and insurance companies with credible estimates that reflect actual cost increases rather than general economic assumptions.
  • Structured settlements: For large settlements involving future damages, structured settlements with inflation-adjusted payments can maintain your compensation’s purchasing power over time, particularly valuable for catastrophic injuries requiring lifetime care.
  • Conservative investment assumptions: When present value calculations apply, insisting on realistic, conservative investment return assumptions prevents artificial reduction of your future damages.
  • Comprehensive documentation: Thorough records of all expenses, including small costs that add up over time, ensure nothing gets overlooked when calculating your total losses.

The volatility of inflation rates in recent years makes these protections even more important. When general inflation runs at higher-than-normal levels, the gap between settlement amounts and actual costs widens faster. Personal injury settlements already face various calculations and adjustments, and inflation adds another layer of complexity that requires careful attention.

When Settlement Timing Matters Most

The timing of your settlement becomes particularly critical in high-inflation environments. If negotiations stretch out for years while inflation runs hot, the real value of any settlement offer decreases each month you hesitate. However, accepting too quickly can leave money on the table if your future damages haven’t been fully assessed.

Cases involving catastrophic injuries or wrongful death often present this timing challenge most acutely. These cases involve substantial future damages that inflation impacts significantly. Reaching maximum medical improvement before settling allows for more accurate projections, but waiting too long means inflation erodes past damage compensation.

Get Experienced Legal Representation at Byrd Davis Alden & Henrichson, LLP

Inflation adds complexity to settlement calculations that already involve medical projections, earnings capacity analysis, and life care planning. With a 98% success rate and recognition by U.S. News & World Report as one of the Best Law Firms in the U.S., Byrd Davis Alden & Henrichson, LLP has the resources and experience to build comprehensive damage calculations that account for economic realities. Our true personal injury trial lawyers have the courtroom track record that gives us leverage during negotiations, often allowing us to secure fair settlements without trial.

Whether inflation currently runs high or low, proper case evaluation requires accounting for future cost increases and protecting your compensation’s purchasing power. Don’t let time work against you. Contact us today to discuss how we can maximize your personal injury recovery.