Insurance may cover the cost of repairs after an accident, but your losses may go beyond dents and scratches.
If your car is now inherently less valuable, “someone may not want to buy that car for the same amount of money as another car that wasn’t involved in a serious accident,” says Jeff Zander, CEO of Zander. insurance. . “You have the right to seek compensation for that loss.”
By filing a reduced value claim, you may be able to recover some of the depreciated value of the car. If you are successful, the insurance company pays you the difference between the value of the car before and after the accident.
what is a diminished value claim?
A reduced value claim allows you to recover the difference between the value of your car before and after a car accident.
For example, let’s say you’re in a car accident caused by another driver. You would file a liability claim against that driver’s car insurance to cover repairs to your car. and if you believe the accident reduced the car’s market value, then you would also file a diminished value claim with your insurer.
That’s because you may want to sell your car later, and a hypothetical buyer “can factor that reduction in value into your deal and pay you x number of dollars less for the vehicle,” says Matthew Groves, Vice President of the Colorado Automobile Dealers Association.
once you file your claim, the insurance company will use its own reduced value claim calculation to determine your payment.
types of diminished value claims
There are three main types of diminished value claims:
inherent diminished value
This type of claim refers to the market value of the car once it has been repaired after an accident. Even if the car is “like new” after repairs, the accident history lowers the car’s value to potential buyers. this is the most common type of diminished value claim.
decreased value related to repair
If your mechanic uses substandard parts or performs poor repairs on your car, you may experience a decrease in value related to the repair. this reduced value means that the vehicle cannot be fully restored to its original condition.
if you own an expensive car, like a tesla, mercedes or porsche, “you need to make sure that when you do the repairs, it’s with porsche or tesla or mercedes parts and not generic parts,” says janet ruiz, director of strategic communications from the insurance information institute. “Those will sometimes lower the value of your luxury cars.”
immediate decreased value
This type of claim refers to the resale value immediately after your car is involved in an accident, before it is repaired. Since your car is likely to be repaired, this type of claim is rarely used.
when should you file a diminished value claim?
If you’ve been in a car accident, you might consider filing a reduced value claim. but it’s not the right move for everyone. consider these factors first:
- The value of your car before the accident: Older cars with high mileage or structural damage are worth less than newer cars with no accident history. it may not make sense to file a reduced value claim because you may not get much compensation in return.
- who was at fault: Your insurance company will not process a reduced value claim if you are at fault for the damage. therefore, if you caused a multi-car accident or hit the side of your house, for example, you will not be eligible to file this type of claim.
- Your State Laws: Each state has different rules about reduced value claims and how they are calculated. your best option is to ask an attorney about your options or visit your state government website and research the laws surrounding these claims.
- If the other driver is insured: If the other driver is at fault but doesn’t have auto insurance, check to see if your policy includes uninsured motorist coverage. if so, then you would file a diminished value claim with your own insurer.
- your auto insurance contract. Car insurance companies will generally not cover reduced value claims if you are at fault in an accident. But if another driver causes an accident, you can file a diminished value claim against your insurance policy.
- your state laws. all states except michigan allow drivers to file a reduced value claim if another party is at fault. this would usually be included in the liability portion of an insurance policy. Since each state handles diminished value differently, check with your state insurance commissioner’s office for more information.
how to file a diminished value claim
if you decide to file a reduced value claim, “address the matter now and act fast,” says zander. it is often easier to gather documentation and present your case a few days after the accident. Your car’s value could also drop even more if you wait to file a claim. Here are the steps you can take to file a diminished value claim:
1. determine who was at fault. Insurance companies determine who caused the accident based on state laws and the details of the accident. You may be able to speed things up by providing a copy of the police report and other documentation, Groves says. “Take pictures, get statements and take the other person’s insurance information,” she says. you can also ask witnesses to give a statement.
That’s why it’s also important to call the police when you’re in an accident. They will “go out and talk to the people at the accident and look at the site,” Ruiz says. “You can tell a lot about where the cars collided and where the skid marks are,” which can help the insurer determine fault.
2. check your state laws. Research your state laws to better understand your rights regarding diminished value of your vehicle. To do this, go to your state government website and search for the division of insurance for information, or enter “[state name] reduced value claim” into a search engine.
3. check the insurer’s rules. You’ll file a claim with the at-fault driver’s insurance company, so call them and ask how they handle these types of claims and what you need to provide. If the other driver in the accident did not have insurance, check to see if they have uninsured motorist coverage. if you do, then you will file the claim through your own insurance company.
4. Gather your documents. Next, you’ll need to estimate the car’s value (before the accident) and gather your claim paperwork. Documents may include photos of the accident scene, a copy of the police report, and a bill from the repair shop.
5. Find your car’s reduced value. To do this, you can hire a licensed appraiser to calculate your car’s reduced value. “Local car dealerships and body shops are also good places to research,” Ruiz says. Either way, ask for a signed report to support your claim. Please note: Any fee you pay for these services will affect any claim payment you receive, so make sure it’s worth it.
6. file the claim. follow the insurance company’s instructions for filing the claim and be responsive if they ask you any questions. this may improve your chances of being compensated for your loss.
7. wait for a response. this type of claim could take weeks or months to finalize, so keep in touch with the claims administrator. ask for updates every few weeks. If you have trouble contacting the insurance company, you may need to hire an attorney as an intermediary.
how reduced value claims are calculated
There is no industry-wide diminished value calculator, and insurance companies typically don’t provide the formula they use, Zander says. “It’s like saying, ‘here’s our playbook for how we run things,'” she says.
but some insurers may use the 17c reduced value formula as a guide. The name and formula come from a Georgia State Farm Mutual Automobile Insurance Company auto insurance case v. Mabry et al. You can use “formula 17c” to calculate diminished value and get an idea of how much you would receive when filing a claim:
step 1: calculate the value of your car.
Use a third-party tool, such as Kelley Blue Book, to find the market value of your car after repairs are completed. their calculators process the numbers for you. simply enter the make and model of the car, the year, the mileage, and the extent of damage in the accident. Let’s take a look at an example and say your car is worth $25,000.
Step 2: Apply a 10% limit to that value.
Next, apply a cap of 10% to the market value you’ve calculated. this is known as the basis loss of value. in our example, that results in:
$25,000 x 0.10 = $2,500
The $2,500 represents the maximum amount you can get on a reduced value claim.
step 3: apply a damage multiplier.
The insurance company will further reduce your payment based on the extent of the damage to your car. In our example, let’s say your car sustained minor damage. less damage translates to a lower reduced value, so your payment will be less compared to a car with major damage. Using the table below, the adjusted diminished value turns out to be:
$2,500 x 0.25 = $625
Step 4: Apply a mileage multiplier.
Although third-party services consider your mileage when estimating the value of your car, insurance companies make their own adjustment based on this factor. Take your car’s mileage (you can find it on your dash odometer) and multiply it by a mileage multiplier to find your vehicle’s final diminished value.
In our example, we’ll assume you’ve only driven 25,000 miles in this car. after applying the mileage multiplier, this is the final adjusted value:
$625 x 0.80 = $500
how to get the most out of your reduced value claim
The insurer that is processing the claim, often on behalf of the other driver who caused the accident in the first place, “won’t go out of their way to educate you on more things you can do so your claim can be bigger,” he says. zander.”but you can contact your own agent, even if you’re not filing a claim with them, and ask them to help you.”
You may also consider hiring an attorney to help you manage the process and obtain fair payment. But this generally only makes sense if you own an expensive car that was badly damaged in an accident.
are insurance companies required to pay a reduced value claim?
Insurance companies may have to pay a reduced value claim, depending on state law and who was at fault. check these two places to find out:
Filing a reduced value claim can take a long time and you may not get much in your payment. Before you go through this process, make sure it’s worth it. You’ll need to establish the fault and value of your car, and make sure you comply with state laws for this type of claim. then file the paperwork right away, so the insurance company can process your claim, send you a payment, and get it back.