As someone who has an auto insurance policy, you have probably glanced through it and found more than a few terms that you were not quite familiar with. One term commonly heard–but not always understood–in the insurance world is “diminished value.” Obviously, it refers to something that has less value than it once had, but what is diminished value in terms of car insurance?
Diminished Value: The perceived loss in value of a vehicle after it has been involved in an automobile accident.
In simple terms, this means that when your car is damaged in an accident, it is worth less than it was before. Even if it is professionally repaired and works and functions just like new, it still has damage history and is worth less in the eyes of prospective buyers. Vehicles that have been involved in accidents typically do not fetch top dollar and the diminished value is often problematic for the vehicle’s owner.
Why Do Cars Have Diminished Value Following an Accident?
Cars are worth less after an accident simply because they were involved in an accident. While some speculate that the diminished value occurs as the result of aftermarket parts used when the vehicle is repaired, even vehicles that have been repaired at a dealership using original authorized parts suffer from diminished value.
Unfortunately, involvement in an accident creates diminished resale or trade value regardless of how well the damage has been repaired. Compared to vehicles of the same make and model that have never been involved in an accident, those with an accident history are simply worth less.
Types of Diminished Value
There are three distinct types of diminished value that a vehicle may sustain following an accident. Immediate diminished value refers to the difference in the resale or trade-in value of a vehicle from before the accident to after all repairs have been performed.
Inherent diminished value assumes that the vehicle has been repaired to its original appearance and condition. The only difference is that the vehicle is now considered one that has been in an accident. This perception of decreased value reduces the amount the vehicle’s owner is likely to get when they decide to sell it or trade it in.
Repair-related diminished value is related directly to a loss in value due to the quality of the repairs performed following an accident. For example, the use of generic or aftermarket parts could contribute to repair-related diminished value. A vehicle may also suffer from repair-related diminished value if the paint color used during repairs does not perfectly match the original color.
Compensation for Diminished Value
In some instances, your insurance company may compensate you for diminished value incurred as the result of a automobile accident. Filing a diminished value insurance claim means that you are requesting money from your insurance company to compensate you for the difference between the value of your car after being repaired and its value prior to the accident. For newer vehicles, this can amount to a few thousand dollars.
Insurance companies do not pay diminished value claims in all circumstances. Each insurance company and state have different policies. In most states, the company will look at who is responsible for the accident when determining whether to pay out. If you are at fault for the accident, you are less likely to be compensated for the vehicle’s diminished value. If you were not responsible for the accident, the company is more likely to compensate you for your vehicle’s loss in value. In some states, however, insurance companies simply do not pay for diminished value.
How to Determine Your Vehicle’s Diminished Value
Determining whether you should file a diminished value claim requires figuring out how much value your vehicle has lost. If you have an older vehicle with little value, filing a claim is likely a waste of time. If you have a newer vehicle, though, it may be a good idea.
There are a couple ways to determine your vehicle’s diminished value. One option is determining the original value using Kelley Blue Book, then getting a trade-in value from your dealership after all accident damage has been repaired. The difference between these two numbers will give you a ballpark idea of how much value your vehicle has lost as the result of the accident.
There are also companies that specialize in diminished value insurance valuations. If you want a solid number, working with one of these companies is your best bet. Just make sure that whomever you work with is qualified and recognized by insurance companies.
If you’ve been involved in a car accident, diminished value is just one of the many issues you may have to face. Talk to your insurance company or an attorney to determine whether you should file a diminished value claim.