The Biggest Secret of Auto Insurance – Diminished Value Claim

Recently, my wife was involved in a little fender bender in a parking lot. She was hit by a young driver who just wasn’t paying attention. The damage was not dramatic and no one was hurt. After gathering all the vital information and contacting our insurance company on the spot, both parties went on with their day.

With almost everything financially related, I strive to seek a nugget of education, and this insurance claim process was no different. The at-fault driver had coverage, and the insurance company was quick into action to set us up with a repair plan and a rental car. Within a little more than a week, we where made whole…..or as they say in the insurance industry: indemnified. But wait, were we really back to where we started? What about the true value or our automobile?

In today’s world of information sharing, insurance companies realize the picture is a bit broader. Even though our automobile was repaired to pre-accident standards, the true value of this asset had diminished. This can now be seen in a Carfax report that will show our car was involved in an accident. If a buyer is deciding between two similar vehicles with the exact same sales price, but one has a clean Carfax report and one shows involvement in an accident, the decision is clear. The buyer will always buy the vehicle with the clean Carfax report. Insurance companies now realize this and offer diminished value claims.

A diminished value claim is an effort to fully indemnify the claimant. In essence, cash is paid to the claimant to fill the gap between what the car was worth pre accident and post accident. Let’s go back to the example of the buyer looking at two similar cars. If the buyer decided the accident was minor and the damage was repaired properly, the buyer may make an offer commiserate to the diminished value…..say $500 less than the car with clean Carfax report. If the owner of the car received $500 from the insurance company as a diminished value claim, the owner was made whole.

The key to a diminished value claim is it must be requested. While the at-fault driver’s insurance was really great to work with, they didn’t offer this without my asking. On another note, the diminished value claim is a negotiable amount. I did not accept their initial offer and asked for what I felt was fair. They agreed.

If you find yourself in an auto accident, remember the true value of your auto may decline more than you realize due to access to information via Carfax reports. Speak to the insurance company about the claim, be patient and courteous, and don’t forget to request a diminished value claim.

About the author

Troy Von Haefen, CFP®
Troy Von Haefen, CFP®

4 Comments

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  • I was driving in the country when a vehicle traveling at full speed ran a stop sign. I was T boned, luckily I turned at the last second and was not hurt. My old favorite Yukon on the other hand was totaled. This is my issue, the women who hit me had insurance but the least amount required by law in California $5000. Worse yet, I could not get her insurance company to respond to calls, e mails, nothing for over 30 days. Even my insurance could not get a call returned. With some hard work, I called the main line of the company “dairyland insurance/viking”. Finally got someone to work with me. What i didn’t know is this 5K is the max amount they had to pay, including storage. We didn’t even know where our vehicle was. Fast forward, they are cutting us a check for $2900. I have been without a vehicle for almost 2 months, no rental. I have great insurance coverage but this particular vehicle is older a 2001 yukon with 300k miles, but is in awesome shape. I didn’t have full coverage on this vehicle. But I do have uninsured motorist, and have been told I can ask my insurance company for those funds to make up my losses it is $3500 max. Do you know anything about that. I have checked the web but can’t find anything like my case? Any help would be appreciated. I was very disappointed my insurance company USAA wasn’t more forthcoming with us, and helping us with this claim against the other cheaper insurance company.

  • I WAS INVOLDED IN AN ACCIDENT AND OTHER PARTY WAS IN FAULT. AFTER MY VEHICLE WAS REPAIRED, I STARTED THE DIMINISHED VALUE CLAIM. HIS INSURANCE COMPANY ASKED ME TO GET A REPORT FROM AN AGENCY WHIHC I DID AND IT STATED THAT IT IS $9,903. THEN INSURANCE COMPANY CAME BACK WITH A REPORT FROM AN ANOTHER AGENCY AND OFFERED ME $1,813. WE DID NOT AGREE ON THE PRICE SO I WAS ASKED TO TAKE MY CAR TO A DEALER AND TRY TO TRADE IT IN AND SEE HOW MUCH THEY WOULD OFFER FOR MY VEHICLE.
    I TOOK MY CAR TO MERCEDES BENZ AND THEY OFFERED ME $21,000. THEN I CHECKED NADA WEB PAGE AND IT INDICATED THAT MY VEHICLE WITH FEWER OPTIONS IS WORTH $28,125. I ALSO CHECK THE VALUE OF MY VEHICLE WITHOUT AND ACCIDENT AND IT IS SOLD FOR $33,000. ALSO FOUND SAME VEHICLES WITH AND AND PREVIOUS ACCIDENT ARE SOLD FOR $23,000. IN ALL CASES IT LOOKS LIKE THE VALUE IS ABOUT $10,000 , BUT INSURANCE COMPANY’S REPORT.
    THEIR REPORT JUST INDICATES THAT I LOST 10% OF WHOLE VALUE OF THE VEHICLE BUT THERE ARE NO CAR PRICES COMPARED AND NO OPINION FROM ANY DEALER. ASKED THEM TO FIND ME DELAER THAT WILL BUY MY CAR AND SELL ME THE SAME ONE WITHOUT $1,813 DOLLARS DIFFERENCE SO THAT I WILL TRADE MY VEHICLE AND BUY THE NEW ONE THEY WONT DO IT CAUSE THERE IS NO SUCH A DEALER. HOW SHOULD I HANDLE THEM? SHOULD I GET A LETTER FROMA LAWYER TO SEND TO THEM ASKING FOR THE FULL AMOUNT?
    REGARDS

  • Hi Will

    A couple of things to think about in regards to your comment:
    1.If the car was worth the payoff of the loan, then the holder of the loan will receive the pmt….and rightly so. Remember the lean holder owns the car.

    2.Since cars depreciate faster in the first couple of years and often leave owners upside down, the owner should look into adding gap coverage to the auto policy. This would fill in the gap between the value and the amount fo the loan balance.

    So, in the case of your example, I would suspect the lean holder was paid and your friend was left with nothing because he/she had no equity in the car. If the owner had some equity in the car, he/she would have been paid that equity.

    On another note: remember payoffs amounts are negotiable!

    Thanks for the comment and the question. Maybe I will post a larger answer in the form of a post.

  • With regard to insurance and indemnification as a result of an accident; A friend of mine bought himself an amazing luxury car a couple of years ago. He was still in the process of paying back the loan on the car when he was struck from behind. The car was totaled and the insurance coverage provided the lean holder compensation. However, my friend was left with nothing not even the “remnants” of the car. What advise would you give my friend, with regard to recovering his investment in the car before the accident? It seems to me that the lean holder gets compensated and my friend walks away empty handed.

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