What Is Diminished Value?
Let’s say you’re in an accident where the other guy is as fault. Because the accident was not your fault, the insurance company for the other guy will determine the current value of your vehicle along with the diminished value. Here’s an explanation of diminished car value from an accident:
- Current Value – The current value of your vehicle once it has been in an accident and prior to repairs is determined by the insurance industry through organizations like Kelly Blue Book or NADA. This value represents what your vehicle was worth at the time of the accident based on model year, mileage, and equipment options. They also review if the vehicle had any prior damage as well as any add-ons or improvements you made to the vehicle prior to the accident.
- Diminished Value – This value is what your car will be worth once the required repairs are made to your vehicle. Keep in mind this value is usually lower than the current value. Why? According to Diminished Car Value Secrets, “no vehicle that has been in an accident can be repaired to exact specifications.” Insurance companies are only required to return the car to “it’s pre-accident state.”
If you’re wondering, if my car was repaired to the pre-accident state, why isn’t the diminished value the same as the current value?
Image Credit: Damaged Car Door / Wikimedia Commons
Diminished Value in the Eyes of the Auto Insurance World
Trying to find out why an insurance company only offers diminished value after an accident can be confusing if you search for an explanation on the Internet.
If your vehicle has a current value of $10,000, but after repairs the diminished value is only $8,000, you have lost $2,000 worth of vehicle value from those needed repairs. Because most insurance policies state they will return your vehicle to the pre-accident state, how can this be fair?
First off, if you go to sell or trade-in your vehicle once it has been repair by an accident, individuals, and new or used car lots have access to companies such as CarFax. For a fee, CarFax will provide information on the vehicle such as prior owners, warranty repairs, and if the car has been in an accident and to what extent the repairs were. In our same example, if you’ve received a diminished value of $8,000 and go to sell or trade-in that car, you probably won’t get $8,000 because the new owner will want to make a profit if they sell it; for example, you might get $6,000.
Some insurance companies will also tell you that you must have your vehicle repaired at a recommended repair facility. Because the insurance industry is regulated state by state, it’s best to know the auto insurance laws in your state. You can obtain your state’s insurance laws through Automotive.com, which offers a listing of auto insurance laws for every state. For example, in New Mexico, no insurance company is allowed to tell you where to have your vehicle repaired.
Fighting a Diminished Value
It is possible to fight for a value higher than the diminished value set by the insurance company. You can do this one of two ways:
- Hire an Attorney – Find a lawyer who specializes in fighting diminished value. You will have to pay the attorney, however.
- Contact the insurance company on your own and be diligent about what you want. In some cases, the insurance company will raise the diminished value.
It is important to remember that because your vehicle was in an accident and repaired, the repairs are reported and anyone who has access to the Internet can find out what the diminished value was after those repairs through websites like CarFax.
The only time diminished value from an accident doesn’t come into play is if your insurance policy has full replacement coverage with full replacement coverage, the insurance company is required to place you in a new car that is worth what you paid for the car when you first purchased the car. These types of policies can be expensive, however.
Your best bet to fight diminished value from an accident is to call the insurance company and ask them how they arrived (what calculation) they utilized to determine the diminished value and then make your case and be diligent about why the value should be raised. If you can’t reach an agreement on raising your diminished value, you may want to sell your car immediately after the accident because with every mile, your car’s value will further decrease.
Image Credit: Heavily Damaged Car / Wikimedia Commons
- Cars Direct (5/25/10) - https://www.carsdirect.com/used-car-prices/auto-diminished-value-a-definition