When you damage your vehicle in an accident, its value typically drops. This is true even if you repair it with high-quality original equipment manufacturer (OEM) parts. The difference between the vehicle’s market value before and after the accident is known as diminished value. It represents a financial loss beyond the cost of repairs.
A diminished value claim seeks compensation for your vehicle’s loss of value, which may be important if you plan to sell or trade in the car. Generally, you can only file a loss of value claim if you are not the at-fault party, though rules vary by state and insurance carrier.
The following guide explains the types of diminished value, when you may be eligible to file a diminished value claim, and how the claims process works. Read on to learn more.
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How Do Diminished Value Claims Work?
If someone damaged your car and you repaired it, your car would still be worth less than before the accident even though the damage was not your fault. A diminished value claim can make up for the loss in value.
In every state except Michigan, you file diminished value claims against the at-fault party’s insurance. File the claim as soon as possible after your car has been fixed because many states have limits on how long you can wait after the accident to submit this type of claim.
In no-fault states or if you’re dealing with an uninsured driver, you can file a diminished value claim under your own uninsured motorist’s coverage if your state allows it.
If the accident is your fault, your own policy’s collision coverage may apply to diminished value claims. However, many auto insurance policies exclude diminished value claim coverage when the policyholder is at fault.
Types of Diminished Value
There are three primary forms of diminished value: inherent, repair-related, and immediate. Each has specific parameters and a different impact on the vehicle’s post-accident market value.
Inherent Diminished Value
Inherent diminished value is commonly used in insurance claims. It occurs when a vehicle loses value after repairs. This value loss is because buyers are less inclined to pay full market value for a car that has sustained damage, even if that damage has been repaired.
Keep in mind that your car’s repair history will be in its accident history report, even if the collision was not your fault. These reports detail vehicle accidents, airbag deployments, structural damage, and other potentially problematic issues.
Repair-Related Diminished Value
Repair-related diminished value is applicable when a vehicle’s value decreases due to the quality of post-accident repairs. This could result from the use of non-OEM parts, color mismatches in paint jobs, or repair work that does not restore the vehicle to its pre-accident condition.
Avoid repair-related diminished value by insisting on high-quality repairs and working with certified mechanics and body shops.
Immediate Diminished Value
Immediate diminished value refers to the immediate loss in a vehicle’s value following an accident, before any repairs. It represents the difference in resale value just before the accident to right after, assuming no repairs have been made. It’s most relevant in legal scenarios or private sales where the vehicle is sold as-is.
Immediate diminished value is not generally used in insurance claims since insurers typically address necessary vehicle repairs before assessing diminished value.
How Do You File a Diminished Value Claim?
Filing a diminished value claim may be more involved than filing a standard post-accident vehicle insurance claim. Typically, the policyholder is responsible for calculating the vehicle’s diminished value and providing compelling proof. While each insurance company may have a slightly different claims process, the steps are typically the same:
- Call the insurance company. Expect to provide details about the accident and state your intention to file a diminished value claim. The company may request documentation including your accident report, repair receipts, and other relevant information.
- Calculate your car’s diminished value. As the claimant, it is your responsibility to calculate your vehicle’s diminished value and present a compelling case to the insurer. In addition to the calculation, it’s a good idea to provide photos of the accident scene and the vehicle damage. The insurance carrier may also require a certified vehicle appraisal.
- Wait to hear from the insurer. It’s common for diminished value claims to take longer to process than standard accident claims. While each company varies, you may expect to wait weeks or months before a decision is reached and the claim is finalized.
How to Calculate Your Car’s Value
Calculating your vehicle’s value after an accident requires a structured approach and a specific, industry-standard formula:
- Determine the value of your car
- Apply a 10% cap
- Apply a damage multiplier
- Apply a mileage multiplier
Learn more about each step.
Step 1: Determine the Value of Your Car
Assess your vehicle’s pre-accident value using accepted tools such as Kelley Blue Book (KBB), Edmunds, or the National Automobile Dealer’s Association (NADA) Guides.
To get an accurate market value, you must input the following vehicle details:
- Make
- Model
- Year
- Trim
- Mileage
- Pre-accident condition
- Features
- Color
- Wheel type
The resulting output is the baseline for calculating the vehicle’s diminished value.
As an example, consider a car that after assessment, you found its pre-accident value to be $20,000. We will use this vehicle to demonstrate the final value calculation through each step.
Step 2: Apply a 10% Cap to That Value
Next, calculate the vehicle’s base loss of value, which typically represents the highest amount the insurer will pay for a covered claim. This is done by multiplying the value calculated in the previous step by 10%.
For example, if you’ve determined your vehicle’s pre-accident value was $20,000, the 10% cap limits the diminished value claim to $2,000. This is the starting point for insurers to estimate the maximum amount of depreciation attributable to the accident.
Step 3: Apply a Damage Multiplier
The next step adjusts the capped value based on the severity of your vehicle’s damage. The multiplier ranges from 0.00 to 1.00 as follows:
- 0.00: No structural damage
- 0.25: Minor structural/panel damage
- 0.50: Moderate structural/panel damage
- 0.75: Major structural/panel damage
- 1.00: Severe structural/panel damage
Applying this multiplier helps fine-tune the diminished value based on sustained damage.
Continuing with the example above, for a vehicle with moderate structural damage, you multiply $2,000 by 0.50, reducing the maximum claim value to $1,000.
Step 4: Apply a Mileage Multiplier
The final step in the calculation is to apply a mileage multiplier, which further adjusts the loss estimate. Higher mileage typically results in lower diminished value because of the general wear and tear associated with increased usage. The multipliers are as follows:
- 0.00: 100,000 or more miles
- 0.20: 80,000 to 99,999 miles
- 0.40: 60,000 to 79,999 miles
- 0.60: 40,000 to 59,999 miles
- 0.80: 20,000 to 39,999 miles
- 1.00: 0 to 19,999 miles
If the vehicle in the example above had 25,000 miles, the $1,000 value is further reduced by 0.80, resulting in a final claimable diminished value of $800 ($1,000 x 0.80).
Putting It All Together
Diminished value claims are typically filed with the at-fault driver’s insurance company after repairs are done. The purpose is to compensate the vehicle owner for the difference between the vehicle’s pre- and post-accident value.
Understanding the types of diminished value — inherent, repair-related, and immediate — helps identify how your vehicle’s worth is affected. Filing these types of claims as soon as possible after repairs are completed is general best practice, as many states have time limitations on when diminished value claims can be considered. Once filed, it is common for the claim to take a few weeks to several months to process.