After a car accident, your car may lose resale value, even if you have it repaired. This is known as diminished value. Diminished value affects you according to the details of the damage, the repairs, your insurance, and the state where you live. How should you handle this if it happens to you? Here’s what you should know.
What diminishes a car’s value?
Any time your car sustains damage—whether it involves an accident with another vehicle or not (for example, if you hit an animal)—its value will diminish. You car’s accident and damage history directly affects its value. Even if you repair your car to its pre-accident condition, you cannot recover its pre-accident value.
What kinds of diminished value should I know about?
The three kinds of diminished value to understand are:
- Immediate Diminished Value – This is the difference in the resale or trade-in value of the car from before the accident to immediately after the accident, before any repair has occurred.
- Inherent Diminished Value – This is the difference in the resale or trade-in value of the car after repairs have been made, based on an assumption that it has been restored to its original condition, except that now it has been in an accident.
- Repair-Related Diminished Value – This is any value lost specifically from inferior repair quality (e.g., if the car was repaired using aftermarket or generic parts, or if an imperfectly matching paint color was used during the repair). In addition to the inherent diminished value resulting from the accident itself, inferior repairs can further reduce the car’s value.
What are some examples of diminished value after an accident?
Example 1: Immediate Diminished Value
You have a five-year-old vehicle with a few minor dings and scratches. Driving on an icy road, you skid and hit a tree, dislodging and denting the front bumper. (Thankfully you’re not hurt!) The car is not a total loss, but you decide not to repair it. You were planning to buy a new car anyway, so you decide to trade it in as it is. The immediate diminished value of your vehicle is the difference in its value before you hit the tree and immediately afterward.
Example 2: Inherent Diminished Value
A month after you purchase a new vehicle, you are rear-ended at a stoplight. The at-fault driver’s insurance company pays for your car to be repaired to a like-new condition. You have no other issues with the car, and two years later, you decide to sell it. A prospective buyer checks out the car’s history report, learns of the accident, and offers you less than you could have gotten if the car had remained accident-free. The difference in the offer you received and the amount you could have gotten is the car’s inherent diminished value.
Example 3: Repair-Related Diminished Value
After an accident, you have your car repaired. The repaired vehicle looks great in the shop when you arrive to pick it up, but after a week, you notice that the paint on a new panel is one shade lighter than the rest of the car. You realize that this will reduce the amount you can get if you attempt to sell the car. The difference in the amount you could have gotten and the price you would likely get—which is specifically attributable to the lack of a high-quality repair job—is the car’s repair-related diminished value.
Can I file an insurance claim for any kind of diminished value?
Depending on your insurance company, the details of your case, and the state where you live, you may be able to file for and receive compensation for your car’s diminished value. This is separate from your accident claim. To be clear, a diminished value insurance claim occurs when you request that an insurance company pay you the difference between your car’s value prior to the accident and its current value (normally after repairs). For newer vehicles, this may amount to several thousand dollars, but not every insurance company will pay this kind of claim.
How do I file a diminished value claim with an insurance company?
If you were at fault for the accident or damage to your car, in most cases you will not be able to successfully file a diminished value claim with your own insurance company (though it won’t hurt you to ask about their policy on claims of this type).
If another driver is responsible for the damage, almost every state will allow you to make a claim against that person’s insurance company. Do keep in mind, though, that making this kind of claim may not be easy. In many cases, it will be your responsibility to prove your loss of value through providing appraisals of the vehicle’s value both before and after the damage.
In cases where the at-fault driver has no insurance, your state may allow you to make a diminished value claim against the uninsured motorist coverage on your own policy.
How can I figure my car’s diminished value after an accident?
Before you can make a diminished value claim, you’ll want to figure out how much your vehicle is currently worth. For an older car, a diminished value claim may not make sense, but doing your own calculations is a good way to decide for yourself. This article by Elan McAfee illustrates clearly and simply, with examples, how to calculate your car’s diminished value.
What can I do if an insurance company won’t pay my diminished value claim?
If an insurance company denies your claim, check with your state’s insurance commissioner for help. If you are unsuccessful there and still feel you have a claim and need help, consider hiring an attorney. A private company specializing in diminished value claims may also be able to help—but do your homework and research them thoroughly before paying for any services in this area.