You may have noticed there are references for diminished value or a diminution of value in your auto insurance coverage. This is not a new concept. In fact, the idea of car diminished value has been around just about as long as there’s been auto insurance. Here are some basics you should understand about this value and how it could impact you in the future.
A Working Definition of Diminished Value
Diminished value has to do with the worth of the vehicle after it’s been damaged in an accident. The figure is based on the premise that even if all the necessary repairs are made, the vehicle is never quite the same quality again. As a result, it will bring in less when you attempt to sell the vehicle.
The purpose of a diminished value claim is to recover the difference between the pre-accident market value and the value of the car or truck after the accident takes place. An approval for this type of claim can be more difficult and will require more detailed actions that a typical accident claim.
The Types of Diminished Value
There’s more than one type of diminished value that may apply. One is known as inherent diminished value. This takes into account the complete history of past damages and the impact they’ve had on the vehicle’s market value.
Another form is known as immediate diminished value. That’s the value of the vehicle in the time frame between the damage occurring and the repairs being made. In most cases, this will not be the form that the insurance company uses for evaluating a claim. That’s because repairs are typically made using the best parts available shortly after the damage occurs.
Last, there’s repair-related diminished value. This may apply if the parts used for the repairs are not made my the original manufacturers and may not be produced using the same quality specifications. That results in a loss, since the assumption is that it was not possible to restore the vehicle to it’s pre-accident condition.
How Providers Determine the Diminished Value
While there is some variation, most insurance providers use what’s known as the 17c Diminished Value Formula to identify the car diminished value that applies. This approach begins by establishing the book value of the vehicle, typically by consulting either the Kelley Blue Book or NADA as resources. As part of the process, factors like the make, model, year, and extent of the damage is taken into consideration.
The resulting figure is used to determine what’s known as a cap. That’s the percentage of the value that the insurance provider is willing to pay out as a diminished value. Typically, that cap is set at 10%.
The cap is then multiplied by what’s known as a damage multiplier. Factors such as the presence of minor or major damage to the panels or structure will determine the specific multiplier that’s used. After obtaining that figure, a mileage multiplier is used to come up with the final diminished value.
Understanding Who Can Have a Diminished Value Claim Approved
Not everyone can have a claim for diminished value approved. In order to have a good chance, you must not be the person who caused the accident. Only parties who are not at fault can successfully make this type of claim.
If the responsible party has insurance coverage, you would file a claim with his or her provider. In the event that the responsible party did not have auto insurance, you can file a claim with your own provider. Assuming the claim is approved, you can rest assured that your insurance provider will take legal action against the responsible party after providing you with a payout.
If you’d like to know more about diminished value coverage, talk with your agent today. While the hope is that you never need to file this type of claim, it’s helpful to know how the process works in the event that doing so becomes necessary.