Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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UPDATED: Jul 14, 2021

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When people refer to diminished value, they are indicating that the vehicle is worth less after an accident than it was before. This is the case no matter how well the repairs were done.

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But if the car is repaired, why is it worth less? Will my insurance company pay me for this loss of value?

How Diminished Value Works

Let’s say you have a $20,000 car that is only a couple of years old. It’s in great condition and has been maintained by your local dealer. Then you’re in an accident that requires a couple thousand dollars in repairs.

If you were to attempt to sell your car after the repairs were done, you might find that you’ll only get $16,000 for the same vehicle. The $4,000 difference in the price you could get for the car before the accident and what you can get after is the diminished value of the car.

While this is a very real consequence of an auto accident, don’t assume that you will be reimbursed for this loss. In most states, the language of auto insurance policies make it very difficult to get a successful claim payment based on diminished value.

There is a myth about diminished value floating around.

You do not have to wait until your sell your vehicle to make a diminished value claim. If you’re going to attempt to make a claim then do so at the same time you make the primary claim.

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Three Reasons for Diminished Value

If insurance is supposed to restore your car to the way it was before the accident, why is a car worth less after an accident? There are three reasons why vehicles experience diminished value after an accident.

Inherent or inferred diminished value. The reason many cars are worth less is because people perceive that they are worth less. Since people believe they aren’t as good as an equivalent car that hasn’t had an accident, they won’t pay as much for them.

Don’t think so? Consider if you were shopping for a used car and found two cars just like the one described above with the same mileage and options. Would you pay the same for the one that had been in an accident as the other one? Most people would see the car without an accident as a better deal. They’ll either buy that one or use the accident to ask for a reduction in price on it.

Diminished Value Due to Repair

While some mechanics and body shops do outstanding work, others do not.Sometimes a repair shop will take short cuts and use cheap materials that reduce the value of the car.

Sometimes these issues are structural or mechanical. Sometimes the shoddy work is merely aesthetic. One of the worst offenders is a poorly matched paint job. Even if the car is completely structurally sound and running better than ever, if it has a poor paint job, it makes the whole car appear shoddy.

Insurance caused diminished value. Sometimes the insurance company can contribute to a lower value for a repaired car. Sometimes a policy allows companies to instruct the repair shop to use second hand or after market replacement parts rather than OEM parts. At times, the insurance adjuster can order the wrong repairs to be done, or omit some.

Does Comprehensive and Collision Cover This

If you have an accident in your car that is your fault, you will more than likely not receive any compensation for any loss of value. The only time you might be able to be able to receive further compensation is if the car doesn’t function as it did before.

For example, you own a truck that you use to pull a trailer on a regular basis, either for work or for other events, and have an accident in it. If the truck is repaired, but it no longer has the torque needed to pull the trailer, then you can go back to the insurance company and claim that they have not restored the vehicle back to the way it was before.

Some states do not allow insurance companies to pay for diminished value claims. The Texas Department of Insurance explains more about diminished value and why it is not a permissible claim in this announcement.

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What About Liability

You might have a better chance of getting a successful diminished value claim from someone else’s insurance policy. If you were hit by another driver and it was his fault, you’ll need to file a claim with his insurance company.

The insurance company will usually offer you a settlement amount fairly quickly.

It’s usually in your best interest not to agree to an early settlement from your insurer. You generally need to be done with any medical treatments stemming from the accident before settling as well as all car repairs.

If you want the insurance company to consider diminished value as part of the settlement, you’ll need to submit records to substantiate your claim.

In addition to the records you should regularly keep on your car, which will be discussed in the next section, you should acquire a report about your car a few weeks after the accident to see whether it shows that your vehicle has been in an accident. This will help show that potential buyers could be prejudiced against your car.

You’ll also need to find some local examples of similar cars for sale. Make copies or printouts of these to show what the car would have been worth before the accident. Then get estimates from dealerships for how much they would pay you for your car. This will show how much less your car is now worth.

Keep Good Records

It’s always a good idea to keep good records for any of your high dollar possessions, like your home and your vehicles. If you don’t already have pictures of your vehicles, take the time to take some. Get shots from several angles of the exterior. Then take a few photos of the interior. If you have any work done on it, like new paint jobs or specialized wheels, update the photos. These are always good to have on hand for insurance purposes.

Also, keep receipts for oil changes, tire rotations, and other maintenance done to the cars. This establishes that you have properly maintained the car. In the case of diminished value, it will help show what you car was worth before the accident.

If your car is totaled in an accident, these records will also help establish a value for your car. Having these records could even help you sell your car, even if it never is in an accident, says Vehicle M.D. Buyers love cars which have been well maintained and taken care of.

It’s also a good idea to review you policy at renewal time to remind you of what it does and doesn’t cover. This can cut down on any confusion when you go to submit a claim.

What to Do if You Are in an Accident

If you are in an accident, the first thing you need to do is to call for help and attend to anyone who is injured. Once everyone is safe and under the care of medical professionals, it’s time to start gathering information about the accident.

If you have a cell phone with a camera, take pictures of the accident site. Be sure to get pictures of both vehicles as well as the relationship with other structures, like intersections or stop signs.

If weather might have been a factor in your accident get pictures of the wet roadway.

You’ll need to exchange insurance information with the other party. If there were any witnesses, it’s a good idea to get their names and contact information before they leave the scene. Witnesses can often help settle disputes about what happened in an accident. But sometimes they don’t stick around until the police get there, so get their information first.

Give the insurance company a call as soon as it is safe to do so. If you need a tow truck, they will get that in motion for you, as well as possibly start on your claim. For more information about the process of filing an auto insurance claim, the Rocky Mountain Insurance Information Association has an excellent guide on their website.

After you get home, take the time to write out exactly what happened. While doing this might be the last thing you want to do if you are sore or shaken up, you’ll want to do it while it is fresh on your mind. You’ll be surprised how many details you forget as time goes by.

While some companies might want you to use one of their preferred repair shops, in most states you have the right to ask it to be taken to the shop of your choice. Be sure to keep records of all telephone calls or emails.

Complete any paperwork the company asks you for and submit it in a timely manner.

Your insurance company can’t settle a claim if you aren’t doing your part. Keep copies of all receipts and paperwork you submit.

If you aren’t happy with the way you claim is being handled, you do have options. The Insurance Information Institute explains your options if this is the case.

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