What Does Diminished Value Mean? Post-Accident Insurance Guide

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Written by Margaret Wack Edited by Nick Versaw

Updated June 15th, 2023

Your car begins to depreciate in value as soon as you drive it off the lot after purchasing it. Many factors influence the value of your car, including its age, mileage, and overall condition. But one of the biggest factors that can reduce your car’s value is getting into a car accident.

After the accident, your car will likely be worth less than before. This is usually true even if the accident is relatively minor, or if your car has been extensively repaired. If you try to sell your vehicle in the future, it will be worth less than a vehicle in similar condition that has not been in an accident. This is known as diminished value. We’ll cover what diminished value means and how the claims process works after an accident.

What is Diminished Value?

Diminished value refers to the difference in value in your car before and after an accident. For example, your car might have a resale value of $10,000 prior to an accident, but after an accident might have a resale value of only $8,000. There are three main types of diminished value: immediate diminished value, inherent diminished value, and repair-related diminished value.

Immediate Diminished Value

Immediate diminished value is the decrease in the market value of the car immediately after the accident, before any repairs have been conducted. After you get in a crash, it’s pretty clear that your car will be worth less than before if there’s damage. For example, if you get into a fender bender and your bumper falls off, your car is immediately less valuable than it was prior to the accident.

Inherent Diminished Value

Inherent diminished value refers to your vehicle’s loss of value after repairs. For example, in that same fender bender situation, if your bumper is repaired or replaced, your car will still likely be worth less than before the accident, no matter how seamless the repairs are. This is because a vehicle’s accident history tends to decrease the resale value of your car, since the auto accident may have caused dents or minor damage, or even structural damage that is not immediately apparent.

Repair-Related Diminished Value

After an accident, sometimes your repaired vehicle is practically good as new. But in other cases, a repair shop isn’t able to restore it to its original condition of your car pre-accident, no matter the quality of the repairs. For example, if your catalytic converter is stolen, your mechanic may not be able to source an original equipment manufacturer (OEM) part. In that case, they might substitute an after-market part, which will often decrease the value of the vehicle.

Why a Car Diminishes in Value After an Accident

When you sell your car, potential buyers can access your vehicle’s accident history if they run a CARFAX history report. Even if your car has been repaired, there’s still no way for the buyer to know for sure that the vehicle is in the same condition it was before the accident. This uncertainty, along with any potential hidden damage to your vehicle that’s not immediately obvious, results in your car’s depreciation in value.

What is a Diminished Value Claim?

A diminished value claim is a claim that policyholders can file with their insurance companies under certain circumstances if their car’s market value has decreased as a result of an accident.

The rules for filing a diminished value claim vary by state, so you should be sure to check your local rules and regulations if you need to file a claim. For example, the state of Georgia allows drivers to file a diminished value claim regardless of who is at fault.

In order to be eligible to make a diminished value insurance claim, drivers need to own their own vehicle and have a clean title. In most cases, they also should not be at fault for the accident. If the other driver is at fault, the at-fault driver’s insurance company will generally pay to cover the cost of the diminished value of your vehicle as well as the cost of repairs. 

This is typically covered by the property damage liability insurance portion of their auto insurance policy. Underinsured or uninsured motorist coverage from your own car insurance company may also cover the cost of your vehicle’s diminished value if the driver is under- or uninsured, or if you’re the victim of a hit and run.

Will My Insurance Company Cover a Diminished Value Claim?

In some cases, insurance companies will reimburse you for the difference in your vehicle’s value due to an accident. It all depends on where you live, what type of coverage you have as part of your insurance policy, and whether or not you were at fault in the accident.

If you’re at fault in an accident, your own insurance company usually won’t cover the cost of your vehicle’s diminished value, since diminished value claims are typically excluded from collision insurance coverage. Collision coverage does cover the cost of repairs, but won’t reimburse you for the diminished value of your car.

If you’re not at fault, there are some circumstances in which your own insurance policy will still cover diminished value. For example, if you get into an accident with a driver without insurance, your uninsured motorist coverage might cover the decrease in your car’s market value.

That said, if the other driver is at-fault, you can often negotiate with their insurance company to compensate you for your vehicle’s diminished value.

Diminished Value Calculator

There are a few steps that insurance adjusters use to calculate the diminished value of your vehicle after an accident. You can use these same steps to estimate the value, too.

1. Base Loss Value

First, they determine the value of your car, which you can view using a tool like Kelley Blue Book or NADA to search for vehicles with similar parameters. You’ll be asked for the year, make, model, mileage, and specifics of the damage. 

They then apply a base loss of value of 10% to the number provided by KBB or NADA. This means that the max amount of the diminished value claim is 10% of the appraisal.

Example: If your car is worth $20,000, multiply it by 0.10 to get the base loss value is $2,000. This is the max amount you can receive from your claim.

2. Damage Multiplier

Next, they adjust the value of your car using a damage multiplier, which is a number between 0 and 1. The more your vehicle is damaged, the higher your damage multiplier will be. 

So, a car that has been totaled would have a damage multiplier of 1, while a car with some scratches would have a damage multiplier of 0. That number is multiplied by the base loss value.

Example: If your base loss value is $2,000 and your car has moderate damage to structure and panels, you’d multiply $2,000 x 0.50 = $1,000.

3. Mileage Multiplier

Finally, you’d apply a mileage multiplier depending on the mileage of your car.

Using the number from step 2, multiply it by the mileage multiplier. This final number is the maximum amount of compensation the insurer will provide.

Example: Our answer in step 2 was $1,000. If the car had 65,000 miles, you’d multiply $1,000 x 0.40 = $400.

In this scenario, your diminished value claim would have a maximum payout of $400.

Here’s all that math for the example scenario summed up:

1. Base loss value: $20,000 x 10% = $2,000
2. Damage multiplier: $2,000 x 0.50 = $1,000
3. Mileage multiplier: $1,000 x 0.40 = $400

Understanding the Value of a Vehicle

Whether or not your car has been in an accident is one major factor in determining the value of your vehicle. But there are plenty of other factors as well, including the make and model, the age of your car, and the exterior and interior condition.

Aside from impacting the resale value of your car, your car’s value can also influence your insurance coverage amounts and costs. For example, collision and comprehensive coverage typically have a coverage limit equal to the value of your vehicle.

At Compare.com, we break down complicated car insurance terms and make them easy for readers to understand. You can get more car insurance advice by browsing our library of auto insurance guides.

Margaret Wack Insurance Writer

Margaret Wack is an auto insurance writer for Compare.com. She has written about insurance and personal finance for brands and publications including Investopedia, Bankrate, MoneyGeek, The Insurance Bulletin, and more. Margaret earned a bachelor's degree in classics, comparative literature, and poetry from Smith College and an interdisciplinary master's degree from St. John's College.