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June 10, 2021
If you’ve gotten into an accident, you will deal with an immediate depreciation known as diminished value. Even when you restore your vehicle fully, it will not have the same market value without an accident.
Diminished value can have a huge impact when you sell your vehicle, but you may be able to collect a claim to help recoup some of the loss.
Read on to find out everything you need to know about diminished value.
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Even if your car is restored 100% after an accident, it will not be worth the same market value. Diminished value is the difference between a car’s value before and after an accident. When you sell the vehicle, it will be worth less money based on the fact that it was in an accident. You can file a diminished value claim to recoup some of what you spent to restore the vehicle.
What if you got into an accident in a leased car? Learn more about what to do next here.
There is more than one type of diminished value. Here are the three types to be aware of:
The vehicle has one value immediately after it is in the accident before it is repaired. This is known as the immediate diminished value. The immediate diminished value is rarely used to file a claim or sell a vehicle because the insurance company provides damage repairs right after the accident.
The inherent diminished value is the most commonly used form of diminished value. The inherent diminished value is how much worth the vehicle has lost simply because it was in an accident. This is used to determine the vehicle’s new market value after assuming quality repairs.
If low-quality repairs impact the vehicle’s value, then it will face repair-related diminished value. Using aftermarket parts or a paint color that is not an exact match can cause this. This value is based on the notion that the vehicle can no longer be restored to its original condition.
Before filing a claim, you must determine if it is the best idea for you. Filing a claim does not guarantee a payout, so you want to make sure it is worth your time. Here are the top considerations:
Not all states allow diminished value claims. Since Georgia permitted these claims due to a class-action lawsuit in 2001, more states have started to. Now, every state aside from Michigan allows for some amount of diminished value claim. To find out if your state covers these claims, contact the insurance commissioner for your state.
Use the 17c Diminished Value Formula to calculate the diminished value of a vehicle. The formula came from the State Farm class action lawsuit that convinced Georgia to cover these claims. It is found in paragraph 17, section c, and is named accordingly.
Here are the steps to using the formula:
First, you need to determine the value of your vehicle. You can use several methods to find the value of your car. Use trusted sites like Kelley Blue Book and NADA to input the details of your vehicle and get an estimate. For this, you’ll need to know the make, model, year, mileage, and damage of your car. You can also opt for a professional appraisal.
Most insurance companies have a 10% cap on how much they will pay on a diminished value claim. The 10% cap is known as the “base loss of value, " which applies to the vehicle value estimate.
You’ll multiply the 10% value cap of the car by the damage to determine the adjusted value. If there is no damage, you will use the zero multipliers. On the other hand, the 1.00 multiplier signifies a vehicle with severe structural damage.
Even though KBB and NADA factor in the mileage for determining value, insurance companies use their own mileage multiplier adjustment. The mileage multiplier is as follows:
To determine the diminished value, you multiply the vehicle value by the 10% cap. Then, you apply the damage and mileage multipliers.
Let’s look at an example:
Imagine you have a car with a market value of $10,000 with mild structural damage and 42,000 miles.
$10,000 x.10 = $1,000. This is the most you could receive from a car insurance company.
$1,000 x .25 = $250 which would be the value adjusted for minor damages.
$250 x .60 = $150 which is the value adjusted for the 42,000 miles.
When filing a diminished value claim, you must provide the diminished value. This can be more difficult and time-consuming than other claims.
Depending on the rules of your insurer, a car accident that is your fault will not be eligible for the value claim. You will likely need to contact the insurance provider of the other driver if the accident was their fault.
Here are the basic steps for filing the claim:
After a vehicle has been in an accident, it loses value, even when completely restored. A diminished value claim is something you file with your insurance company to recoup the lost value.
The process is difficult and not a guarantee. However, if your car is worth a lot less after an accident that was not your fault, then filing the diminished value claim can help you recoup some of the value loss.
These claims tend to take longer than many other auto claims. They are complicated and can take several weeks or even months to finalize. If you have to hire a lawyer, it will take even longer.
Insurance companies will only pay the claim if the accident was not your fault and you effectively prove the diminished value. State laws vary on the claims.
Cars immediately lose value after an accident for being in an accident. Accidents are a concern to future buyers, so they lower the value. Additionally, low-quality repairs following an accident can reduce the value.
To calculate the diminished value, you must use the 17c Diminished Value Formula. You’ll need to know the market value of your vehicle, the mileage, and the extent of the damage. Find the market value of your vehicle, then take 10% of the book value. Multiply that 10% by the damage and mileage multipliers to estimate your diminished value claim.
Keep in mind that your insurance company won’t pay for the diminished value if you are at fault for the accident. Next, make sure you have followed all of the requirements and submitted the correct documents. If the insurance company still will not pay, consider working with a legal professional.
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