What is Diminished Value?
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UPDATED: Mar 13, 2020
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Whenever a vehicle is involved in an accident, it loses value. Even if the car is flawlessly repaired, the accident will still show up on VIN reports and potential buyers will know that the car was involved in a collision. This reduces the resale value of the vehicle and can be a major concern for individuals who plan to trade in or resell the car.
In order to compensate for this cost, an individual can file a claim for diminished value. Essentially, diminished value is a payment made by an auto insurance company to cover the lost value of the repaired vehicle. This is not available on all insurance claims, but it may be something you can take advantage of if your vehicle is ever damaged. The diminished value settlement is a one-time payment received after the claim has been settled; it will not increase the value of your car, but it can soften the blow of the car’s reduced worth whether you choose to keep the vehicle or sell it.
Why Cars Lose Value After an Accident
Even though a vehicle has been repaired to the condition it was in prior to the loss, it may never be exactly the same as it once was. Automobiles are complex machines, and small flaws can lead to performance problems over time, especially if the vehicle endured any mechanical damage. Vehicles with damage to their frames, suspension, engine or other areas may never be exactly perfect again.
Even if the vehicle sustained only cosmetic damage, a potential buyer would not know that. A VIN report like Carfax only shows that the vehicle has been involved in a collision and repaired. Many buyers are wary of purchasing any vehicle that has this record because they don’t know the full extent of the damage or whether the seller is being truthful about the completed repairs.
Additionally, most vehicles are repaired with aftermarket parts rather than new parts from the manufacturer. These parts may look identical to the old part, but their use makes the vehicle no longer original and thus the car’s value goes down.
How to File a Claim for Diminished Value
If your vehicle has been damaged in an auto accident, you may be able to recover diminished value. In order to file for diminished value, your vehicle must have been damaged in an accident that was not your fault; you are unable to recover the lost value on the auto if you caused the accident yourself. In most cases, diminished value claims are filed directly with the at-fault person’s insurance company; you may file it with your insurer instead if the accident was a hit-and-run or the responsible party is uninsured.
The diminished value claim is handled after the vehicle is repaired. You would need to call the insurance company and request that the process be started; most insurers will not immediately offer it. Once you’ve requested to file the claim, the insurance company will send you some diminished value paperwork. You must fill this out completely and send it back in to get the process started.
In most cases, an insurance adjuster will make an appointment to look at your vehicle. This will be a different adjuster than the one who first looked at your damaged car. The adjuster will inspect the repaired vehicle and provide you with a quote of how much the car would be worth before and after the accident; they will then offer a settlement based on the difference.
This number is negotiable. It may be worthwhile to obtain several independent appraisals so that you have hard evidence of the vehicle’s worth. Be prepared to haggle with the adjuster, and be aware that the adjuster does not have to accept your preferred price.
The check will be made out to you directly and can be used however you’d like. Although the diminished value settlement is intended to bridge the lost resale value of a vehicle, you are not required to sell the car after receiving the settlement. You can keep the funds and use them toward anything you wish. Bear in mind, however, that this is the only payment of its kind that you will qualify for on this vehicle, so if you do resell it later you must be aware of its current market value and be prepared to accept that price.
Diminished value claims are not widely familiar to car owners, but any insurance company should be able to assist you with the process. If you have any questions about filing this type of claim, you can contact your agent or the customer service department of your insurance company to clarify the process and get a claim started.