Insurance is supposed to help make you right after an accident. That’s easy enough to do by paying out for any repairs, injuries, or damage that happens.
But what a lot of people—including insurers—don’t think about is how your car might actually be worth less overall after the accident. Even after insurance pays to bring it back to tip-top shape.
But you may be able to file a diminished value claim to help with this loss in value. Let’s take a closer look at what this claim can do for you.
What is a diminished value claim?
The diminished value of your car refers to the difference in the market price for your car before and after an accident.
The damage your car sustains because of an accident can significantly bring the value of it. Even once repairs have fixed everything.
If you try to sell your car in the future, you’ll probably be able to get less for it just because potential buyers will see its checkered past. And in some cases, the repair jobs themselves can be the cause, such as if there’s mismatched paint jobs or if the repair shop uses aftermarket parts instead of OEM parts.
In either case, you may be able to file a diminished value claim to help cover the cost of your car’s loss in value. It’s not always guaranteed and it’ll take a bit more work on your end, but it can still pay off.
Is a diminished value claim the same as depreciation?
Depreciation and diminished value are different.
Depreciation is the drop in value of your car over time. Even if your car goes through repairs with the original manufacturer’s parts, the value of the car will still be less than it was before the accident.
How do I know if I can file a diminished value claim?
It’s usually pretty straightforward to know whether to file a claim or not.
If someone hits you and you have collision insurance, you file a claim. If a tree falls on your car and you have comprehensive insurance, you can file a claim. But with diminished value claims, the answer isn’t always so clear.
Here are some factors that might affect whether you can file a diminished value claim or not:
Where you live
For most states, there’s generally no law that says insurance companies have to pay for diminished value claims. That doesn’t mean your claim won’t be approved, but it does mean that your chances may be slimmer.
To see if your state has any rules regarding diminished value claims, you can check with your state’s insurance commission.
Your insurance company
Some insurance companies have their own rules about diminished value claims. They may specify whether they cover this or not in the legal fine print of your policy (you did read it word-for-word, right?).
Other insurance companies require you to pay extra for coverage for diminished value claims.
Your car’s pre-accident value
If you drive an older vehicle or a high-mileage car, you might not get anything from a diminished value claim. That’s because your car might not be worth enough to justify a big drop in value due to an accident.
If your car was worth $2,000 before the accident and $1,900 after repairs, it’s unlikely that an insurance company will go through the trouble to pay out.
Who was at-fault
Finally, it depends on who caused the accident.
If someone else was at fault, you can file a diminished value claim with your insurance and they will work it out with the other driver’s insurance company to get you the payout.
If someone uninsured or underinsured hit your car, you’d also file a claim with your insurance if you carry uninsured/underinsured motorist coverage.
But if you were at fault, your chances of successfully filing a diminished value claim with your own insurance isn’t so hot. It’s still worth a shot, but you’re less likely to see anything from it since you are at fault.
How do I file a diminished value claim?
If you’re in an accident, filing a regular claim for physical damages or injuries is relatively straightforward. You contact your insurance company, tell them what happened, and answer their questions and file any documents.
But it’s a little more complicated with a diminished value claim. In this case, you’ll need to prove how much value your car has lost when you file your claim. This is usually done in one of two ways:
Get an appraisal
The best way to put a dollar amount on how much value you’ve lost since your car has gone through repairs is to get a professional appraisal.
It’s best to get this in writing, and have the appraiser specify how much less your car is worth now as a direct result of the accident. You can then submit this document to the insurance company as proof of your diminished value claim.
Use the 17c rule
This rule is commonly used by insurers to estimate the dollar amount of a diminished value claim. It’s a several step process that goes like this:
Check the car’s NADA value
The first step is to establish how much the car is worth according to NADA estimates. For this example, let’s consider a 2019 Honda CRV, worth $32,000.
Calculate a 10 percent base loss rate
Next, multiple the car’s value by 0.10. This will set a maximum limit on the diminished value claim. In our example, 10 percent of $32,000 is $3,200. This is our base loss rate.
It’s important to note that this number is mostly arbitrary. There’s not really any rhyme or reason why it should be set to 10 percent. That’s one of the main criticisms of this method and why it’s always a good idea to also use the appraisal method to establish how much your car has actually lost value.
Apply a damage multiplier
Now we’ll actually take into account how much damage your vehicle has.. According to the 17c rule, you’ll multiply the base loss rate by one of the following numbers, depending on how badly damaged your vehicle was:
- 1.00 – Severe structural damage
- 0.75 – Major damage to panels and structure
- 0.50 – Moderate damage to panels and structure
- 0.25 – Minor damage to panels and structure
- 0.00 – No damage
Let’s say that our CRV suffered significant damage to the left-side passenger door panel. It’s not enough to count as “severe,” but it’s also not “moderate,” and so we’ll call it “major.” In this case, we multiply our base loss rate ($3,200) by 0.75, to get $2,400.
Apply a mileage multiplier
Just like above, we’re going to take our estimate one level further and multiple it according to how many miles the vehicle has:
- 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 or more
This is a second area of criticism for the 17c rule. The NADA value already took your car’s mileage into account in calculating its value, and here it’s penalized again.
You can also see why high-mileage vehicles may not qualify for a diminished value claim. If your car has over 100,000 miles most insurance companies won’t pay out (anything multiplied by 0.00 becomes $0).
Let’s say that our Honda CRV had just 12,500 miles on it. In that case, the multiplier is 1.00, and so the final diminished value claim for this vehicle would be $2,400.
File the diminished value claim
The final step is to submit your paperwork to the insurance company and file the claim.
If you guessed that it can be a time-consuming hassle to file a diminished value claim, you’re right: it is. But you also don’t have to go at it alone.
There are companies you can hire to help you through the whole process, although they’ll charge a price. If your insurance company denies your diminished value claim, gather the paperwork that proves you’re owed money. You can take it to court.
Filing a diminished value claim definitely isn’t as easy or straightforward as regular insurance claims, but in some cases—such as if you’re driving a newer or expensive car and you don’t have new car replacement insurance—the results can be well worth the trouble.