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After a car accident, insurance might cover the cost of repairs—but your losses might go beyond dents and scrapes. Understanding how a diminished value claim works could help you recoup some of your losses after an accident. Here's what to know.
What Is a Diminished Value Claim?
A car that's been in an accident is often less valuable compared to a car with no accident history. That's because the car may have residual issues from the crash—even after repairs are completed.
The difference between what your car was worth before an accident and after you get repairs is called diminished value. With a diminished value claim, your insurance company or the other driver's insurer pays for some of that lost value.
Types of Diminished Value Claims
There are three types of diminished value claims available.
Inherent Diminished Value
This type of claim refers to the car's market value once it's repaired after an accident. Even if the car is "good as new" after repairs, the accident history decreases the car's worth for potential buyers. This is the most common type of diminished value claim.
Repair-Related Diminished Value
If your mechanic uses low-quality parts or otherwise provides substandard repairs on your car, you may experience repair-related diminished value. This diminished value assumes the vehicle can't be totally restored to its original condition.
So if you own a Porsche, for example, you'll want the mechanic to use Porsche parts for the repairs. Generic parts or another manufacturer's parts can diminish the value of your luxury car.
Immediate Diminished Value
This type of claim refers to the resale value right after an accident, before you repair the vehicle. Because you'll likely get your car repaired, this type of claim is rarely used.
Learn more >> How to File a Car Insurance Claim
How to Calculate Diminished Value
There's no single formula for calculating diminished value, and insurance companies generally won't provide the formula they use.
But some insurers might use the 17c diminished value formula as a guide. This formula originated in a Georgia car insurance claim case. The name comes from where the formula appears in the case documents: paragraph 17, section c. Here's how you can use the formula and get an idea for how much you might receive in a claim payout:
Step 1: Calculate the Value of Your Car
Use a third-party tool, such as the National Automobile Dealers Association (NADA) or Kelley Blue Book, to find the value of your car before the accident. These websites have tools that crunch the numbers for you. Just enter the car's make and model, year, mileage and general condition. For example, let's say your car is worth $25,000.
Step 2: Apply a 10% Cap to The Value
Under the 17c formula, the insurance company sets a maximum payout that's 10% of the market value you've calculated. This is known as the base loss of value. In our example, that works out to:
$25,000 x 0.10 = $2,500
The $2,500 represents the maximum amount you can get in a diminished value claim.
Step 3: Apply a Damage Multiplier
The insurance company will further reduce your payout based on the extent of damage to your car. In our example, let's say your car had minor damage. Less damage translates to a lower diminished value, so your payout will be lower compared to a car with major damage. Using the table below, the adjusted diminished value works out to:
$2,500 x 0.25 = $625
| Damage Multiplier Ranges | |
|---|---|
| Multiplier | Damage Level |
| 1.00 | Severe structural damage |
| 0.75 | Major damage to structure and panels |
| 0.50 | Moderate damage to structure and panels |
| 0.25 | Minor damage to structure and panels |
| 0.00 | No structural damage |
Step 4: Apply a Mileage Multiplier
Although third-party services consider your mileage when estimating your car's value, insurance companies do their own adjustment based on this factor. Take the mileage on your car—you can find it on the dashboard odometer—and multiply it by a mileage multiplier to find the final diminished value of your vehicle.
In our example, we'll assume you've only driven 25,000 miles on this car. After applying the mileage multiplier, here's the final adjusted value:
$625 x 0.80 = $500
Your vehicle's diminished value, then, is $500.
| Mileage Multiplier Ranges | |
|---|---|
| Multiplier | Mileage |
| 1.00 | 0 - 19,999 miles |
| 0.80 | 20,000 - 39,999 miles |
| 0.60 | 40,000 - 59,999 miles |
| 0.40 | 60,000 - 79,999 miles |
| 0.20 | 80,000 - 99,999 miles |
| 0.00 | 100,000+ miles |
How to File a Diminished Value Claim
If you decide to file a diminished value claim, it's often easier to collect documentation and present your case within a few days following the accident. The value of your car could also further drop if you wait to file a claim. Here's how to file a diminished value claim on your car.
1. Gather Documentation
Hopefully you've taken the necessary steps right after the car accident to get the claims process started. In most cases, it's a good idea to file a police report and get a copy, take pictures of the cars and the accident scene, take statements from witnesses, and collect the other person's insurance information.
2. Prove the Car's Lost Value
Laws in your state may require you to prove the lost value to file this type of claim. Using a third-party website, calculate your car's value before it was involved in the car accident. It's also helpful to find photos of the car pre-collision.
To help support your claim, an appraiser can help you determine the car's value in its current condition. Any fees you pay for these services eat into any claim payout you receive, so make sure it's worthwhile.
3. Call the Insurance Company
You'll file a claim with the at-fault driver's insurance company, so call and ask how they usually handle this type of claim and what you need to provide. If the other driver in the accident was uninsured, check whether you have uninsured motorist insurance. You may be able to file a claim through your own insurance company under this form of coverage.
4. File the Claim
Follow the insurance company's instructions for filing the claim, and be responsive if they ask any questions. This can improve your chances of being compensated for your loss. A diminished value claim could take weeks or months to finalize, so stay in touch with the claims handler. Ask for updates every few weeks.
If you're having trouble communicating with the insurance company, you may need to hire a lawyer as an intermediary.
Should You File a Diminished Value Claim?
If you've been in a car accident, you might consider filing a diminished value claim. But it's not the right move for everyone. Consider these factors first:
- Your car's value before the accident: Older cars with a lot of mileage or structural damage are worth less than newer cars with no accident history. It might not make sense to file a diminished value claim because you might not get much compensation.
- Who was at fault: Your insurance company won't process a diminished value claim if you're at fault for the damage. So if you caused an accident with another driver or backed into the side of your house, for example, you won't be eligible to file this type of claim.
- Your state's laws: Every state has different rules about diminished value claims and how they're calculated. Your best bet is to ask a lawyer about your options or visit your state government's website and research laws surrounding these claims.
The Bottom Line
Filing a diminished value claim can be time-consuming, and you might not get much in your payout. Before going through this process, try to figure out whether your car is worth significantly less after an accident. Then get the paperwork filed right away, so the insurance company can process your claim, send you a payout and make you whole.