Diminished Value Explained for Car Insurance

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 18, 2021

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Here's what you need to know...

  • The insurance company must assign the diminished value to your vehicle before you have an accident
  • All of the car insurance that you purchase is insurance to pay other drivers if you are the cause of an accident, except comprehensive and collision
  • the worse the damage was that was repaired, the less likely it is that you will be able to purchase full coverage on your vehicle

Car insurance diminished value is the loss of value a vehicle receives after it has been in an accident.

The diminished value an insurance company places on a vehicle can be negotiated; however, most people don’t even realize that a diminished value has been placed on their vehicle until they are in an auto accident.

People who are aware of diminished value often think that it isn’t right that a car should be assigned a reduced value simply because it was in an accident, especially if original parts were used and the car looks like it is in new condition.

While it may not seem fair, the bottom line is that once a car has been in an accident, it doesn’t have the same safety levels as it did before the accident.

What’s more, when someone knows that a vehicle has been in an accident, they aren’t willing to pay as much for that vehicle. It is a simple fact that a car that has been in an accident is considered to be damaged goods.

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Can an insurance company assign a diminished value to my vehicle?

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There have actually been several lawsuits brought up against car insurance companies that have that have assigned diminished value to vehicles that have been in an auto accident.

In most cases, the law allows the insurance company to assign a diminished value to your vehicle based on the market value of the vehicle if it were sold to a used car lot.

The insurance company must assign the diminished value to your vehicle before you have an accident. This, of course, is referring to a future accident, not the accident that reduced the value of the vehicle.

If the insurance company hasn’t already assigned your vehicle a diminished value, then they cannot do so after the fact.

You also have to keep in mind that there is a difference between reduced market value and diminished value:

  • Reduced market value is the value of your car in the current market rather than if it were brand new
  • Diminished value only applies if the market value of your vehicle is further reduced by having been in an auto accident

There are some states that don’t allow insurance companies to assign the diminished market value to a vehicle that has been in an auto accident. You will need to check with your insurance company for your state guidelines and to see if your vehicle has been assigned a diminished value.

As mentioned above, you can negotiate the amount of diminished value assigned to your vehicle. For example, if all factory-direct parts were used to repair your vehicle, then the value of your vehicle is higher than if you used after-market parts.

Also, if a registered mechanic worked on your vehicle, especially one that specializes in your type of vehicle, then your car will have more value than if you did the repairs yourself.

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Will my premiums decrease if my car has diminished value?

Unfortunately, you will see very little or even no decrease in your premiums because of a diminished value being assigned to your vehicle. The reason for this is that you aren’t buying insurance for yourself; you are buying insurance to protect other drivers from you!

With the exception of comprehensive and collision coverage, all of the car insurance that you purchase is insurance to pay other drivers if you are the cause of an accident.

This really has nothing to do with the value of your vehicle.

If, however, you are driving a vehicle that your insurance company doesn’t believe is entirely safe, you could end up paying more for your insurance, not less.

Are there coverage restrictions on a car previously assigned a diminished value?

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Whether or not there will be any restrictions on the type of insurance you can buy will depend on how bad the damage was to your vehicle.

If your vehicle was totaled in an accident, it is likely that you will never be able to purchase comprehensive or collision coverage for your vehicle.

Simply put, the worse the damage was that was repaired, the less likely it is that you will be able to purchase full coverage on your vehicle.

It is for this reason that many people are hesitant to purchase a repaired vehicle from a seller. They face the possibility of financing a vehicle that they can’t insurance, which means they could face losing their vehicle to their lender.

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