Well, your contractual relationship with your insurance company says that as part of your contract with them you agree not to accept settlements on their behalf. They’re encouraging OP to essentially take $500 so they don’t have to pay their deductible, and then go to their insurance filing a claim with the caveat of “I have already accepted a settlement regarding this matter and as such you cannot pursue the opposing party’s insurer for compensation”

And so your insurer will then cover your damages per your collision policy, but then they’re going to go ahead and raise your premiums (or just drop you).