What Are Diminished Value Claims?
A car’s resale value drops after it’s damaged in an accident. Filing a diminished value claim can make up for that loss.
Diminished value is the difference between what a car was worth before it was in an accident and what it’s worth after a crash. To make up for that difference, you may be able to file a diminished value claim.
Whether or not you can file a diminished value claim depends on a few factors, like your insurance company, who caused the accident and where you live.
You’ll learn more about diminished value claims in this article, as well as:
- When to file a diminished value claim
- How to file diminished value claims
- How to calculate diminished value
What is a diminished value claim?
When you file a diminished value, or loss of value, claim, you’re asking an insurance company to cover the perceived loss in value of a car that has been in an accident.
You file this kind of claim because cars depreciate in value after they’re damaged in accidents. This is true even if they’re repaired in a way that makes them “good as new.”
Why? The main reason is most potential buyers won’t pay as much for a vehicle they know has been damaged in a crash.
For example, let’s say your vehicle was worth $25,000 before an accident, according to a source like Kelley Blue Book. Afterward, you might have a hard time finding a buyer who will pay $20,000 for it — simply because of its accident history.
That $5,000 difference is the diminished value of your car. And you may be able to make up for it with a successful diminished value claim.
When to file diminished value claims
You should consider filing a diminished value claim if you’re in a car accident you didn’t cause.
This is a must for many insurance companies — that you aren’t at fault for the crash. Some insurers won’t pay out a diminished value claim if you caused the accident. Usually you need to file a diminished value claim with the insurer of the at-fault driver.
In other words, if you have collision car insurance and you crash your vehicle, your insurer will pay to repair the damage — minus your deductible, of course. But it probably won’t cover the diminished value.
What if the at-fault driver doesn’t have auto insurance? Uninsured motorist coverage might help, assuming you carry it. Uninsured motorist insurance covers medical bills and lost wages for you and your passengers if you’re involved in an accident with an uninsured driver who caused the crash.
Who caused the crash isn’t the only thing that determines if you can file a diminished value claim. Another factor that plays a role is where you live.
State diminished value laws
Where you live can have a big impact on whether or not you can file a diminished value claim.
These 15 states currently allow people involved in an accident to recover the diminution in value of a damaged vehicle from an at-fault driver’s insurance company:
- New Mexico
- New York
- South Carolina
Don’t worry if your state isn’t named here. Many, even most, others also allow people to recover diminished value from at-fault drivers after an accident. The ones mentioned above just have favorable court cases on the books related to receiving compensation for diminished value.
Keep in mind, though, that just because state law allows diminished value claims doesn’t mean insurance companies have to pay them.
How to file a diminished value claim
Filing a diminished value claim isn’t much different from filing any other kind of car insurance claim.
Still, you’ll probably need to do a bit more legwork before filing a diminished value claim than you would if you were filing a more common claim — especially if you want it to end in a payout.
Here are some steps to consider while you prepare to make a diminished value claim:
- If you’re planning to file a first-party claim, or file a claim with your own insurance company, make sure they’ll allow it.
- Also, see if your insurer offers accident forgiveness. See if you qualify for it, too. If the answer to both of those situations is “yes,” it could keep your premiums from going up while you work on your diminished value claim.
- Before you do anything else, ask the company you’re going to file the claim with how you should file it.
- The most important step when filing a diminished value claim is proving that your car’s resale value dropped because of an accident. To do this, start by checking the pre-accident market value of your vehicle using a car value calculator or sites like Edmunds, Kelley Blue Book or NADA. Then, take your car to a dealer, garage or mechanic and ask them to do a diminished value appraisal. The difference between the two amounts is around what you should try to recover from either your insurance company or the at-fault driver’s insurer.
- After determining this figure, file your claim. This part of the process may go smoothly and result in a reimbursement, but there’s also a chance it may not. If the insurance company denies your claim, you might need to contact your state’s insurance commissioner or hire an attorney.
How to calculate the diminished value of a car
Many car insurance companies use the 17c Diminished Value Formula to calculate what a car is worth after it’s been damaged in an accident. Here’s how the process works:
- First, the insurer determines the current value of your car.
- Then it applies a 10% cap — known as the “base loss of value” — to that amount. This is the most the insurance company will pay on the claim.
- They also apply a damage multiplier to that amount. This adjusts the diminished value of your car based on how much damage was done to it during the accident.
- Finally, they apply a mileage multiplier. This adjusts the diminished value of your car one last time. It’s based on the number of miles on your car’s odometer at the time of the crash, with higher mileage meaning lower value.
Bottom line: Diminished value claims
A diminished value claim can help you make up for a perceived loss in the value of a car after it’s damaged in an accident.
In most cases, you’ll only be able to file a diminished value claim if you didn’t cause the accident. And you’ll usually file it with the at-fault driver’s insurance company, not your own.
Also, when you file a diminished value claim, you’ll need to prove your car’s resale value dropped because of the accident. You can do this by following the advice in the “How to file a diminished value claim” section above.
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