Most drivers know that you can (and often should!) file a claim with your car insurance company after an accident. But, even if your car is fully repaired, it still loses value after being damaged in a car crash.
Depending on the laws in your state and who was at fault in the accident, you may be able to file what’s called a diminished value claim to be compensated for that loss. A diminished value claim can cover the long term loss of value, not just the necessary repairs after an accident.
What is diminished value?
After a vehicle has been damaged, it can lose value, even once it’s been fully repaired. Even if a car has been restored to near-perfect condition, just the fact that it was in an accident and had to be repaired can lower its value if you decide to sell it or trade it in down the road.
That loss — the difference between what your car was worth before the damage and what it’s worth after repairs — is called diminished value, and it may be covered by your car insurance policy.
If you successfully claim diminished value, it means you’ll receive a payment to make up for the loss in value, but claiming diminished value isn’t easy, and it’s not the kind of auto insurance claim you can make after just any type of damage.
Types of Diminished Value Claims
You may need to file a specific type of diminished value claim, depending on how (and how badly) your car is damaged. There are three different types of diminished value claims.
1. Inherent diminished value
The most common type of diminished value claim, inherent diminished value is based on the car’s market value once it has been damaged in an accident, even if it is completely repaired. Having an accident history decreases the worth of the vehicle for future buyers, which means the act of being damaged in an accident was enough to bring down the overall value of your car.
2. Repair-related diminished value
Repair-related diminished value assumes your car can’t be restored to its original condition. This is common when cheaper options like knock-off or after-market parts are used in repairs. Using bondo to repair a dent or putting a cheap, generic catalytic converter in a car to replace a stolen one are good examples of repair-related diminished value.
Using only factory-issued parts and high quality repairs is a good way to reduce or prevent repair-related issues from causing diminished value. Some insurance companies offer coverage that includes original equipment manufacturer (OEM) parts, which can help prevent repair-related diminished value.
3. Immediate diminished value
An immediate diminished value claim refers to the value of your car immediately after an accident, before the damage has been fixed. Getting your car repaired prevents this problem, so most drivers will never file an immediate diminished repair claim.
How to calculate diminished value on a car
Most insurance companies use something called the “17c diminished value formula” when calculating the diminished value of a car after an accident.
It sounds complicated, but the formula for calculating diminished value breaks down into four steps:
Calculate the value of your car: Using a source like Kelley Blue Book or NADA, determine how much your car was worth before the accident.
Apply a 10% cap to that value: Insurance companies apply a 10% cap as the base loss of value in an accident, which is the most an insurance company will usually pay for a claim.
Apply a damage multiplier: The insurance company will multiply that 10% cap by 0, .25, .5, .75, or 1, depending on the amount of structural damage involved. This means the 10% cap is the highest amount you can possibly get for a diminished value claim.
Apply a mileage multiplier: Just like the damage multiplier, your insurance company will also multiply the 10% cap value by 0, .2, 24, .6, .8, or 1, depending on the number of miles on your vehicle. The higher your mileage, the lower your diminished value claim payment will be.
While this is a standard way of calculating the value of a diminished value claim, the 7c formula has been criticized for being inaccurate and even unfair to consumers. One issue is that the formula can underestimate the value of the loss, so always consult with a third-party appraiser or expert if you think you’re not getting what you deserve.
When is diminished value covered?
If you’re in a car accident, collision coverage will cover damage to your own vehicle, regardless of who was at fault. That means that, whether you caused an accident with another car or backed into a tree, insurance will cover the cost of repairs as long as you have collision coverage.
But if you were the at-fault driver, your collision insurance most likely will not cover your vehicle’s diminished value. If your car was damaged in an accident caused by another driver, however, you may be able to claim diminished value with the at-fault party’s insurance.
The at-fault driver is legally responsible for the damage they cause to your car, which can include the loss of its overall value — so diminished value may be covered by the other party’s liability insurance when you file a third-party claim.
You also may have more luck filing a diminished value claim with a new car. If you’re driving an old clunker and it’s damaged in an accident, the value of the car may not actually decrease that much because of its accident history.
But if your car is relatively new and has never been in an accident before, then an accident could significantly affect its value, even after it’s been fully repaired.
What if the other driver was uninsured?
If you were in a car accident caused by an uninsured driver, you’ll need collision coverage or uninsured motorist property damage/underinsured motorist property damage (UMPD/UIMPD) to cover the damage.
Depending on where you live, you may also be able to make a diminished value claim under your uninsured motorist coverage.
But whether you’re filing a diminished value claim with your own insurance company or the other driver’s, in order to receive compensation for diminished value, there are certain steps you’ll need to take to prove that your vehicle has lost value.
How to file a diminished value claim
When you’re preparing to make a diminished value claim, your job is to figure out how much value your car has lost. It’s your responsibility to prove to the insurer that your car has lost value as a result of the accident — follow these steps to make sure you’re
Look up the pre-accident value of your car using a resource like Kelley Blue Book to find out what cars of your make and model are worth.
Then have your repaired car professionally appraised to see what the difference is between its previous value and its post-accident value.
Now calculate how much you’re owed — if the pre-accident value of a vehicle with the same specs as yours was $20,000, and the professional diminished value appraisal finds that it is now worth $17,500, that means you should seek $2,500 to recoup the lost value.
Can I negotiate a diminished value claim?
Yes, you can try to negotiate a diminished value claim, but there’s no guarantee of success. Car insurance companies use their own formula to calculate diminished value after an accident, so the payment they offer may be lower than what you believe to be the diminished value of your vehicle. You can try to negotiate a larger payment, but you may not get the full amount you’re seeking.