Diminished value is the price difference between the value of your car before and after a crash. After an accident, your insurer calculates what your car is worth based on factors such as the age of the car, how many miles it has and the extent of the damage. This amount is probably lower than what your car is worth. A diminished value claim can help you recoup that price difference.
This article will cover:
What is a diminished value claim?
A diminished value claim pays out the difference between what your car is worth before and after an accident. A car's value diminishes over time and is reduced even more after a crash. Factors that affect depreciation after a crash include:
- The make and model of your car.
- How many miles it has on it.
- Your state's diminished value laws.
According to SellMax, insurers usually only pay out 10% of a car's value if the car is totaled and gets a salvage title. Given that a car starts to lose value the minute it's driven off the lot, you will probably wind up being disappointed with the first payout amount your auto insurer offers. Whether your car is damaged but repairable or totaled, a diminished value claim can help you get a better payout.
When do I file a diminished value claim?
If you didn't cause the accident, consider filing a diminished value claim. Many auto insurers will not consider such a claim if you were at fault for the crash. If you are at fault and you have collision insurance, your provider will pay for the damages minus your deductible, but not the diminished value.
Calculating a diminished value claim
Car insurers use a formula to calculate the value of the car after the accident and determine a payout offer. The 17c Diminished Value Formula tends to be the most commonly used means of calculating the depreciated value of the car. We'll break it down here:
- Your insurer will determine the value of your car before the accident by a website such as the National Automobile Dealers Association (NADA).
- It will then apply the base loss of value, often 10%, to that amount. For example, if your car was worth $30,000 before the accident, its base loss of value amount would be $3,000.
- It will also apply a damage multiplier to the end amount. This multiplier is based on how severe the structural (not mechanical) damage was to the car after the accident.
| Damage level | Damage multiplier |
|---|---|
| None | 0.0 |
| Minor | 0.25 |
| Moderate | 0.50 |
| Major | 0.75 |
| Source: SellMax | |
For example, if your $30,000 car suffered moderate structural damage, the sum diminished value of your car at this point is $1,500 ($30,000 x 10% x 0.50).
4. After this, a mileage multiplier is added to the equation. The more miles on the odometer, the less value the car will have.
| Miles on odometer | Mileage multiplier |
|---|---|
| 0-19,000 | 1.0 |
| 20,000-39,999 | 0.8 |
| 40,000-59,999 | 0.6 |
| 60,000-79,999 | 0.4 |
| 80,000-99,999 | 0.2 |
| 100,000+ | 0.0 |
| Source: SellMax | |
To illustrate how the mileage multiplier works, let's say our $30,000 car has 60,000 miles on it. The mileage multiplier used would be 0.4. Adding it to the formula gives us $30,000 x 10% x 0.50 x 0.4= $600 as the final diminished value amount.
However, there are some issues with the 17c Diminished Value Formula. First, the 10% base amount isn't based on anything in particular. It's just what the 17c formula started with. Second, this formula double-dips. The mileage on the car's odometer is already figured into the book value of the car at the beginning. It is then figured in again with the mileage multiplier.
For these reasons, you should use another source that is reputable, such as the Kelley Blue Book or Edmunds, when calculating the diminished value for your claim.
How do I file a diminished value claim?
Filing a diminished value claim requires some research on your part, but it can be worth it. Here's how to file a diminished value claim after you've done the needed research.
- First, make sure your insurer allows you to file a diminished value claim. The criteria for eligibility usually require that the car:
- Was damaged by another at-fault driver.
- Isn't leased.
- Is less than seven years old.
- Has under 100,000 miles on the odometer.
- Has only suffered minor damage in previous accidents.
- See if your car insurance provider offers accident forgiveness and if you qualify. If so, it might help keep your premium from increasing during the diminished value claim process.
- Ask your insurer to explain how the claim process works.
- Build evidence by proving that the resale value of your car decreased as a result of the accident. Start by using a source such as Kelley Blue Book or Edmunds. Take your car to a mechanic or dealership and have them do a diminished value appraisal as well. The difference in dollar value between your research and the appraisal is the recoverable amount you should use when dealing with your insurer or the at-fault driver's insurer.
- File your claim. If all goes well, the insurer should cut you a check. If your reimbursement claim is denied, consider contacting your state insurance commissioner. As a last resort, you can hire a lawyer, but that could cost more than what you get back in the reimbursement.
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