The Impact a Vehicle’s Diminished Value Has on Insurance

After your vehicle is involved in an accident, you might file a diminished value claim to help you recover any drops in value that occurred due to the accident. Usually, the diminished value of the vehicle will be collected from the company that insured the vehicle of the at-fault party. This claim should be made in any instance when you are involved in an accident that you did not cause. When you understand how insurance companies calculate total diminished value, you can negotiate the terms of your claim so that you receive the best possible compensation.

Definition of Diminished Value

Diminished value is sometimes referred to as diminution of value. This term refers to the difference in the potential selling price of a vehicle prior to an accident and after an accident has occurred. This is a different concept from depreciation, which is the natural drop in a vehicle’s value over a longer period of time. When a car is involved in an accident, its value will diminish even if the repairs were made with parts licensed by the original manufacturer.

In one example, you might be selling a used car for $15,000. A buyer is willing to meet the selling price until they find out that the car has been previously involved in an accident. At this point, they lower their offer to $12,000. Your vehicle’s diminished value would be $3,000, because that’s the difference between the market price and the price that the buyer is willing to offer. You have lost $3,000 worth of value simply because the vehicle was involved in an accident.

Calculating Diminished Value

The formula that most United States car insurance companies use for the calculation of diminished value is called 17c. The formula’s name comes from a Georgia court case that first established the concept of diminished value. Diminished value calculators won’t be applicable to every instance, but insurers typically will use some variant of the 17c formula. To calculate the estimate of your vehicle’s diminished value, complete these steps.

Check the value of the car. This can be done through the use of NADA’s website, and will allow you to easily obtain an estimate of the value of your vehicle. If you want to get the most accurate value, you can input information about the vehicle including the color, wheel type, year, make, model, condition, engine, and mileage.

Calculate the basic loss of value. Most insurance companies will apply a cap of 10%, generally referred to as the base value loss. This 10% cap will be applied to the sales value that NADA estimates. This number is the maximum amount that you can claim when you file your diminished value claim; you will not be able to file a claim for greater than 10% of your NADA appraisal value.

Use a damage multiplier. Your insurance company will use damage multipliers to adjust the base value loss that you calculated earlier. The cap that was established will be multiplied by a number that ranges from 0.00 to 1.00. The resulting figure is the adjusted figure for the diminished value of your vehicle. The number from 0.00 to 1.00 is chosen based on your insurer’s determination of the damage to your vehicle.

When cars had no structural damage or any replaced panels, the base value loss will be multiplied by 0.00. The rest of the scale is as follows:

  • 0.25 – Minor damage to panels and vehicle structure was incurred
  • 0.50 – Moderate damage to panels and vehicle structure was incurred
  • 0.75 – Major damage to panels and vehicle structure was incurred
  • 1.00 – Catastrophic structural damage was incurred

Apply a multiplier for mileage. The mileage multiplier will reduce the adjusted base value loss. Cars with more miles will receive a lower payout for a diminished value claim. When a car has been driven for more than 100,000 miles, the base multiplier is 0.00. When the car has been driven for less than 20,000 miles, the base multiplier is 1.00.

Sources:
https://en.wikipedia.org/wiki/Diminished_value 
https://en.wikipedia.org/wiki/Appraisal

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