Fatal car accident and the insurance company is only giving $1,000!

It's quite possible, if that's what the ambulance and whatever care she did get works out to.

The automobile policy (and I'm assuming that's what we're talking about here) isn't life insurance.  If there was collision and comprehensive coverage, then the fair market value of the car, less the deductible, would be due.

Insurance is a contract.  The policy sets out specific "hazards" that are covered.  As horrible as this event was, it's probably not likely that the car insurance company has any liability based on the fact of her death alone.  The family needs to talk to an attorney, but I wouldn't be optimistic.