Hit by another, she dies 3 months later

What is the name of your state? Arkansas

We were hit by an elderly woman. She ran a stop sign and a ticket was issued to her. Her insurance accepted liability.
My truck was totaled and paid off.
We did NOT sign a medical release form and have a lawyer. Since, me and my wife have been to three doctors and I am still going, all of which are going to my lawyer waiting on a settlement.

The lady that hit us passed away due to old age (77).
Now my lawyer says we have to file against her estate and not just the insurance company, because they only have to pay the 25,000.00 she had on her policy. That amount will only pay my medical bills at best.
That doesn't make any sense to me.

Does it matter that she died as to how much the insurance pays?
Why would it matter? If her estate has already been given to her family, how can that happen?

Thanks in advance,
DarrinB

How then do people get 100's of thousands when in an auto accident if the insurance only has to pay the 25,000 policy?

Because everyone does not carry only $25,000 in coverage. Some people have hundreds of thousands to millions of dollars in liability coverage.