Diminished Value Claims Explained

Cars are worth less after a crash, even if repairs make it seem "good as new." A diminished value insurance claim pays you the difference between what your car was worth before the accident and what it's worth now.

Before you file a diminished value claim, confirm that your state allows it. Also, you can only file a diminished value claim when another driver is at fault. You'll file the claim with their insurance company.

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What is diminished value?

Diminished value, or diminution of value, is the difference in market price for a vehicle before and after an accident. Even a car that has had quality repairs with parts from the original manufacturer will lower in value.

Cars are worth less after being repaired, because there's no guarantee that the replacement parts are the same quality as the original parts. An accident can also cause structural damage that appears months or years later.

Diminished value is different from depreciation, which is a drop in value over time. You can't make a claim for a car that has depreciated in value.

When to file a diminished value claim

Most insurance companies don't allow you to file a diminished value claim against your own policy, which means you can't file if you caused the crash.

You should make a diminished value claim as soon as possible after the accident. Most states have statutes of limitations of a few years on property claims, but it's easier to provide supporting documents if you file right after the accident. It's also better for providing an estimated market value for your car, because the value will drop over time.

How to make a diminished value claim

To file a diminished value claim, contact the at-fault driver's insurance company. This is known as filing a third-party claim. Getting an independent appraisal can help your negotiations.

Every insurance company has its own process for diminished value claims. You may need to go to small claims court if the at-fault driver's insurance company refuses to acknowledge your diminished value claim.

States where you can make a diminished value claim

Every state has its own laws regarding diminished value. You can contact your state's insurance department for details.

How to calculate diminished value

No one calculator applies to every instance, but most US car insurance companies calculate diminished value using a formula called 17c or a modified version of it. It's named after the Georgia court case that established it.

Below are the steps to estimate your vehicle's diminished value:

Step 1: Check your car's value. Use the National Automobile Dealers Association's (NADA) website to get a vehicle appraisal. For a more accurate value, the website lets you input specific information about your car.

Features that determine how much your car is worth

Step 2: Calculate the base loss of value. Insurance companies commonly cap the NADA's value estimate at 10%, which is also known as the base loss of value. This means that the maximum amount for diminished value claims is 10% of the NADA appraisal.

Step 3: Apply a damage multiplier. Insurance companies use a damage multiplier to adjust the base loss of value. In other words, the company determines the amount of damage by multiplying the cap in step 2 by a number from 0.00 to 1.00. This results in the adjusted diminished value. A multiplier of 0.00 is for cars with no structural damage or replaced panels, and 1.00 is for cars with severe structural damage.

1.00: Severe structural damage

0.75: Major damage to structure and panels

0.50: Moderate damage to structure and panels

0.25: Minor damage to structure and panels

0.00: No structural damage or replaced panels

Step 4: Apply a mileage multiplier. The mileage multiplier functions like the damage multiplier. It reduces the adjusted base loss of value by how many miles are on the odometer. An older car's value will generally be lower than a newer car's. The adjusted base loss of value from step 3 is multiplied by the appropriate mileage multiplier to get the diminished value.

1.00: 0–19,999 miles

0.80: 20,000–39,999 miles

0.60: 40,000–59,999 miles

0.40: 60,000-79,999 miles

0.20: 80,000–99,999 miles

0.00: 100,000 miles or more

Example of a diminished value calculation

For this car, the diminished value after an accident would be $600.

Formula: Value of vehicle x 10% cap x damage multiplier x mileage multiplier = diminished value

Step 1: Check your car's value. $20,000

Step 2: Calculate the base loss of value. $20,000 x 10% = $2,000

Step 3: Apply a damage multiplier. $2,000 x 0.75 = $1,500

Step 4: Apply a mileage multiplier. $1,500 x 0.40 = $600

Final diminished value: $600

How does a diminished value appraisal work?

Companies commonly use the 17c formula to calculate a vehicle's diminished value, but it has many flaws that could result in a diminished value lower than a car's actual worth. The fair market value depends on the features of the car itself and possibly where you live.

The 10% cap on the base loss of value is arbitrary. It was simply the precedent set under the original use of the 17c formula. The car's mileage affects the diminished value twice under this formula: once under the NADA's market value and again when determining the mileage multiplier.

Use websites other than the NADA for more proof of your vehicle's fair market value. Kelley Blue Book, for instance, may give different results than the NADA.

Having a third party inspect the physical damage can also help you negotiate under step 3 of the 17c formula.