Diminished Value Claims Explained | Bankrate
What is Diminished Value?
After a car accident, the value of your vehicle can decrease significantly, even if you repair it to its original condition. This decrease in value is known as diminished value. When you try to sell or trade in your car, its accident history will be evident in reports like Carfax, leading to a lower market value. To recoup the lost value, you can file a diminished value claim, which helps compensate for the reduced value of your vehicle.
Types of Diminished Value
There are three types of diminished value, each reflecting the depreciation of your car’s worth after an accident:
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1. Inherent Diminished Value
This type is widely recognized and accepted. Inherent diminished value refers to the decrease in value due to the car’s damaged history, which is noted in auto history reports. It assumes that the repairs were of top quality and represents the amount by which the vehicle’s value will decrease based on its accident history.
2. Immediate Decreased Value
Immediate decreased value represents the difference in resale value right after an accident, before the vehicle undergoes repairs. Although this type is commonly used in court systems, insurance companies rarely consider it when filing a diminished value claim because they cover the repair costs immediately after a covered accident.
3. Decreased Value Related to Repair
This refers to the loss in value caused by poor-quality repairs made after an accident. For example, if the paint doesn’t perfectly match or if aftermarket parts are used instead of original equipment manufacturer (OEM) parts, the repair quality affects the car’s value beyond the inherent diminished value. This type assumes that the vehicle cannot be fully restored to its pre-accident condition.
How to Calculate Diminished Value
In the United States, most insurance companies use the 17c reduced value formula to determine a vehicle’s new value after an accident. This formula, named after a Georgia claims case involving State Farm, follows specific steps:
Step 1: Determine the Value of Your Car
To calculate the sale or market value of your vehicle, you can use websites like NADA or Kelley Blue Book. These calculators require information such as the year, make, model, mileage, and extent of damage.
Step 2: Apply a 10% Cap
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Insurance companies generally impose a 10% cap, known as the base value loss, on the estimated sale value of the car according to NADA or Kelley Blue Book. The cap represents the maximum amount the insurer will pay for the diminished value claim.
Step 3: Apply a Damage Multiplier
Damage multipliers adjust the value determined in step two based on the structural damage caused by the accident. These multipliers range from 0.00 to 1.00, with 0.00 indicating no structural damage or replaced panels, and 1.00 indicating severe structural damage.
Step 4: Apply a Mileage Multiplier
Insurance companies use mileage multipliers to account for the car’s mileage when determining its value. The value adjusted in step three is multiplied by one of these mileage multipliers to calculate the final diminished value.
Under the 17c formula, let’s say your car has a market value of $15,000, moderate damage, and 20,000 miles. The calculation for the diminished value would be as follows:
$15,000 x 0.10 = $1,500 (maximum diminished value)
$1,500 x 0.50 = $750 (adjusted value for moderate damage)
$750 x 0.80 = $600 (adjusted value for 20,000 miles)
How to File a Diminished Value Claim
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Filing a diminished value claim can be more complex than other types of claims because you typically have to prove the car’s diminished value. If you are at fault for the accident, your claim will likely be denied. However, if the other driver is responsible, follow these steps to file a diminished value claim:
- Check your insurance company’s process for filing a diminished value claim.
- Document your car’s market value using tools like Kelley Blue Book or NADA.
- Gather evidence to prove the reduced value, such as photos and documents from the accident scene and the damage to your vehicle. You may also need an appraisal from a certified vehicle adjuster.
- Comply with all the insurance company’s conditions for the diminished value claim to increase your chances of approval.
It’s important to note that state regulations also affect how diminished value claims are handled. Each state has different statutes regarding insurance, so researching your state laws can help you understand your rights better when it comes to the decline in your vehicle’s value.
Considerations When Filing a Diminished Value Claim
Filing a diminished value claim may not be the best option for everyone. Consider the following factors before deciding:
- The value of your vehicle before the accident: If you drive an older car with high mileage or existing structural damage, you may not receive a diminished value payment.
- Fault in the accident: If you were at fault, your insurance company is unlikely to pay a diminished value claim.
- Involvement with an uninsured motorist: If you have uninsured motorist coverage, you have a slightly higher chance of receiving compensation for a diminished value claim.
- Your state regulations: Different states have varying regulations regarding diminished value claims.
Since each state has different statutes, it’s crucial to research and understand the regulations specific to your state. Most states, except Michigan, allow filing of diminished value claims if the other party is at fault.
When to File a Diminished Value Claim
If the other party is at fault in an accident, it’s advisable to file a diminished value claim to recover the difference in your vehicle’s value. However, you generally cannot file a diminished value claim against your own insurance company if you are at fault. You can file a claim with your own insurer only if the at-fault driver is an uninsured motorist or if you are the victim of a hit-and-run.
It’s best to file a diminished value claim with the at-fault party’s insurance company as soon as possible, ideally within days of the accident. Submitting your case promptly, along with supporting documentation, increases your chances of success. Additionally, the longer you wait to file a claim, the more the value of your vehicle can decrease. Each state may have its own statute of limitations, requiring you to file a claim within a certain period from the accident.
Frequently Asked Questions
- Is a diminished value claim worth it?
- How long does it take to settle a diminished value claim?
- How long does it take to get a claim settlement?
- What is the best car insurance company?
For more information, you can explore topics like online car insurance quotes, car insurance rate comparison, and the cheapest car insurance companies.
Remember, understanding diminished value claims can empower you to file a successful claim if an accident damages the value of your vehicle.
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