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A car accident can significantly impact your vehicle’s resale value. Cars lose an average of $500 in resale value if they have an accident on record, according to Carfax. This loss of value is called diminished value.
A diminished value claim seeks compensation for the vehicle’s drop in market value after an accident. The burden of proving a decrease in value is on you, but, if you succeed, you can recover funds you’ll likely lose in the resale market.
Here’s what you need to know about diminished value claims:
What is a diminished value claim?
Once a car is involved in an accident, its resale value can take a significant hit, regardless of how well it has been repaired or how minor the accident was.
A diminished value claim is an insurance claim you can file to request compensation from your car insurance carrier for the difference between the vehicle’s value before an accident and its value after repairs.
Will my insurer pay for diminished value?
Your insurance provider may cover diminished value, but it largely depends on where you live and who’s at fault in the accident.
States have different rules regarding diminished value claims. In most states, you can receive compensation for the diminished value of your vehicle if another driver caused the accident. If the at-fault driver is uninsured, receiving compensation may depend on if you have uninsured motorist coverage.
However, if the crash was your fault, it’s unlikely that you’ll receive compensation. Standard car insurance policies generally exclude diminished value coverage if the accident is deemed your fault.
Good to know: Ultimately, it’s up to you as the insurance policyholder to prove that your vehicle is worth less than it was before the accident.
Check Out: What is a No-Fault Accident?
States that pay diminished value claims
All states except Michigan allow you to receive some diminished value claims if another driver causes the accident.
But again, if the accident was your fault, your auto insurance policy most likely prohibits you from seeking compensation for diminished value.
In some states, you can submit a claim for diminished value with the at-fault driver’s insurance carrier. This is known as a third-party claim. The 15 states in the graphic below allow you to submit third-party claims for diminished value:
Check with your insurance provider or your state’s insurance commissioner for specific details on state laws regarding diminished value claims.
Different types of diminished value
You can claim three types of diminished value when submitting a claim with your insurance provider. The best option depends on the type of damage and repairs made (or not made):
- Inherent diminished value: The most common type of diminished value claim, inherent diminished value refers to the loss in resale value after the car is completely repaired. It’s also referred to as “stigma damage” due to the stigma associated with cars that have been in accidents.
- Immediate diminished value: This claim is for the loss in resale value of a car immediately after an accident but before any repairs are made. Immediate diminished value claims aren’t as common since people typically choose to get their car repaired as soon as possible following an accident.
- Repair-related diminished value: This refers to lost resale value due to incomplete or substandard repairs. Low-quality repairs that might lead to this diminished value include inferior aftermarket parts or a bad paint job.
Worth Reading: How Long Do You Have to Report an Accident to Your Insurer?
How to file a diminished value claim
To file a diminished value claim, follow these steps:
- Contact law enforcement. Call law enforcement to the scene if you’re in an auto accident. Not only can they help process the accident scene, but they may determine who’s at fault and provide crucial documentation for you to use in your claim.
- Document the accident. Take photos of the car accident, including physical damage, vehicle positions, traffic signs and lights, and any other details that might come in handy later on in the claim process.
- Determine who’s at fault. If the accident was your fault, it’s unlikely you can claim diminished value for your vehicle. If the other driver is at fault, you may be able to file a third-party claim with their insurance carrier. If your state doesn’t allow third-party claims, you can submit a first-party claim through your insurer. Refer to your state’s laws for diminished value claims for guidance on eligibility.
- Calculate the value of your car before the accident. Use a vehicle valuation tool like Kelley Blue Book to determine your car’s value pre-accident. You’ll need this to determine your car’s diminished value.
- Calculate the value of your car after the accident. Once you complete the necessary repairs, you’ll need to calculate the diminished value of the vehicle. Most insurers use the diminished value formula called “17c.” Online guides can help you work through this calculation. You can also hire a licensed appraiser to help determine the vehicle’s diminished value.
- File a claim. Contact the proper insurance carrier and let them know you would like to file a diminished value claim. The insurance agent will direct you on how to proceed, what documentation the carrier requires, and how to file a claim. Most likely, the insurer will have an expert inspect the vehicle.
- Wait for a decision. Once you’ve filed a claim, wait until the insurance carrier processes the claim and makes a determination. If the insurer doesn’t pay out for the claim, consider filing an appeal or contacting your state’s insurance department for advice on how to proceed.
A robust car insurance policy protects you financially from significant damage and other expenses sustained in a wreck. Finding the right insurance provider and coverage, however, can take some time.
Credible can save you time and money. It only takes a few minutes to compare car insurance rates from top carriers and find the best coverage for your situation.
Keep Reading: How to Get Car Insurance Without a License
Disclaimer: All insurance-related services are offered through Young Alfred.