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What Is a Diminished Value Claim?

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When you get into an auto accident, your car isn't the only thing that can incur damage. You might need to take time off of work or obtain medical care, of course — but did you know that the value of your vehicle is also subject to its own type of damage? Even after you get the physical damage fixed, the fact that you were involved in an accident can decrease the amount of money your car is worth. But, thankfully, your wallet doesn't necessarily have to take this hit.

There are different types of car insurance policies that address the different losses you'll deal with when you're involved in a collision. One of these, called a diminished value claim, addresses the drop in market value that can happen as a result of an accident. Learn more about the basics of these claims, including what they are, how they work and how to file one with your insurance company.

What Are Diminished Value Claims?

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In an accident, there's usually one driver who's considered at fault for causing the collision. Depending on state laws, the driver who isn't at fault may be able to file a diminished value claim against the at-fault driver's insurance company. Car accidents are included on vehicle reports, and they make cars less valuable. A diminished value claim is a method of compensating the not-at-fault driver for the decrease in the resale value of their car after it incurred damage during the collision.

Rather than covering the full value of the car, the diminished value represents a percentage of the value of the car. For most insurance companies, claim amounts are capped at 10% of the car's pre-accident appraised value. This means the highest amount the insurer pays for this type of claim is 10% of the car's value. An insurer makes adjustments to this number based on the level of damage the car sustained and its mileage before the incident. Depending on the circumstances, a diminished value claim may result in a payout of a few hundred dollars even if the car lost thousands of dollars of value.

What Is the Purpose of a Diminished Value Claim?

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A diminished value claim is an additional form of compensation for a driver who didn't cause an accident but whose car sustained damage from it. The at-fault driver's insurance company will typically pay for repairs or make the not-at-fault driver an offer to repair their damaged car.

However, say the not-at-fault driver believes that, even with repairs, their car will significantly decrease in value as a result of the accident. The driver can file a diminished value claim with the purpose of receiving compensation to cover some of that loss of value. While the claim may not make the sale of the car profitable, it can lessen the financial setback that the not-at-fault driver deals with because of the accident.

Types of Diminished Value Claims

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There are three types of diminished value claims. The differences between the claims relate to the timing and value of repairs made to your car. Any car involved in an accident loses value in two ways. The first is that, regardless of the extent of the damage, having an accident on your car's record makes it less valuable. Second, depending on the type of repairs and the quality of replacement parts used, your car can also lose value because of repairs.

Immediate diminished value claims are made based on cars that haven't had any repairs completed. These claims take into account the loss of value both from being in an accident and from needing repairs.

Inherent diminished value claims are made after repairs are already completed. These claims focus on the loss of value merely from being involved in an accident, and they can award you money even if your car appears to be in much better condition after repairs.

The third type of claim, repair-related diminished value claims, deals with the quality of the repair. For example, a car repaired with original parts is more valuable than one repaired with aftermarket parts. This type compensates you for the decrease in value due to the way your car was repaired.

When to File a Diminished Value Claim

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You're able to file a diminished value claim when you're deemed not at fault in a vehicle accident, the other driver has insurance, your car had value before the accident and you live in a state that recognizes these claims.

You can only file a diminished value claim against the insurance of the at-fault driver; people who are deemed at-fault for an accident can't file this type of claim. Diminished value claims are effectively asking the at-fault driver's insurance company to recognize that another form of compensation is necessary to make the not-at-fault driver financially whole again. If the at-fault driver is uninsured or underinsured, it may be impossible to file this kind of claim.

When assigning value to a car, insurance companies consider a variety of factors, including mileage, year, make, model, special features and pre-accident condition. A 20-year-old car with 300,000 miles that was missing a fender before the accident is an unlikely candidate for a diminished value claim. On the other hand, a new car with 8,000 miles that was in like-new condition before the accident is more likely to receive a diminished value claim.

How to File a Diminished Value Claim

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You'll file a d iminished value claim against the insurance company representing the at-fault driver. Start by asking that company about its policies for submitting claims. Then, verify with your state insurance commission that you're permitted to file a diminished value claim where you live.

Next, you'll need to gather all of the information the insurance company asks for. This often includes a police report determining who's at fault for the accident, pictures of the damage, and bills or estimates for repair. To determine the value of the car, you might also need to obtain an appraisal.

Depending on the value and pre-accident condition of the car, diminished value claim payouts can be low. Especially in instances in which an insurance claim has already compensated the not-at-fault driver for necessary repairs, filing a diminished value claim can be cost prohibitive; the expense of gathering evidence for the claim could exceed the final payout. Despite this, diminished value claims can be a safety net for drivers who stand to lose a significant amount of their cars' value, even after repairs, as a result of an accident they didn't cause.