Insurance Claims and Diminished Value of a Vehicle

How does the value of a car change after an accident with repairs covered by an insurance policy? This article will introduce you to the concept of diminished value.

What Is The Diminished Value Of A Car?

The diminished value refers to what a car is worth after it has been involved in an accident and repaired. Let’s have a look at an example.

Someone rear-ends you and causes $4,000 worth of damage on a car with a current market value of $25,000. You fix your car on the other driver’s liability insurance and it looks as good as new. However, when potential buyers find out that it has been involved in an accident, you won’t get more than $22,500 for it. The decrease in market value caused by an accident is called the diminished value.

Why Does The Diminishing Of The Value Occur?

Insurance specialists pointed out three major reasons why the value of a car may be diminished:

• It’s inherent – due to safety reasons, buyers will just want to pay less if a car has been involved in an accident.

Insurer won’t pay enough – the insurance company may deny payment for quality superior body parts and only approve of inferior ones, or deny payment for certain repair procedures recommended by the service store.

Repair shop did a sloppy job – a car can drop its value if the body shop did a poor job, which includes poor welding or poor paint jobs.

A Well-kept Secret

The official line stated by most auto insurance companies is that a repair would reinstate a car to its previous state, yielding no loss in value. However, there is no such thing as a perfect repair and, even if this was possible, services like Carfax or Autocheck would put a tag on your car with the label “Accident Damage”.

Since the car is now worth less, it would make sense to be billed less for insurance. Only a select few states take the diminished value into account and adjust the coverage rates accordingly. The state of Georgia, for instance, requires insurance carriers to factor in the diminished rate after an accident. They are currently using an “estimated value” model which, based on statistical data, adjusts the new insured value. However, voices say the new cost is still higher than the real one and, if you want a truly accurate assessment, you should get an expert’s evaluation or you will be losing money when you sell your car and also pay more for insurance.

The Current Laws And Regulations

Again, with the exception of a select few states, the law mandates insurance carriers to reinstate the car to its previous condition and not reimburse you for the perceived loss in value. It’s quite hard, almost impossible even, to pin a lower selling price on the results of a previous accident, as there are many reasons why you may not be getting the rate you were asking for. All in all, it’s your loss, and you will have to live with it.

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