Car Accidents: Determining Value and Diminished Value

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If you’re involved in a car accident, and your vehicle incurs serious damage, one of the first things you need to understand is that the insurance company -- whether it’s your own insurance carrier or the other driver’s -- is going to place a dollar value on your vehicle. This valuation helps the insurance company decide whether it is going to pay to get your vehicle fixed, or deem it a “total loss” and give you “actual cash value” for it. But how does the insurance company arrive at a value? Can you make a claim for the diminished value of your vehicle after an accident, and if so, how does that relate to “actual cash value”? Read on to learn more.

Determining the Value of Your Vehicle

There’s nothing like a car accident to illustrate the difference between what most vehicle owners think their car is worth, and their insurance company’s cold-hearted valuation of the vehicle. There’s usually a pretty big gap between the two.

When valuing your vehicle, the insurance company tries to come as close as possible to the resale value for your car in its pre-accident condition. Edmunds and Kelly Blue Book are commonly used to find this value, by comparing your vehicle to one:

  • of the same make, model, and year
  • with the same factory-added options
  • in similar condition, and
  • in the same geographic area.

When your insurance company comes up with a figure, don't be afraid to ask them to explain how they arrived at it. And if you’ve got documentation that may be relevant to the valuation, by all means show it to the adjuster. This valuation is a critical aspect of any vehicle damage claim after an accident. We’ll explain why in the next section.

Diminished Value Claims Versus “Actual Cash Value”

People sometimes confuse the terms “diminished value” and “actual cash value” after a car accident, so let’s look at the differences.

Diminished Value Claims. “Diminished value” refers to the simple fact that a serious accident automatically reduces the value of a car and makes it more difficult to sell. People aren't as likely to purchase cars that have been in accidents, due in part to the perceived potential for future problems. Thanks to companies such as Carfax, potential buyers can obtain information about used cars using the Vehicle Identification Number, including reported accidents involving the vehicle. Many states also require owners to disclose the accident history to potential buyers.

If you’ve been in an accident that wasn’t your fault, and your vehicle has incurred significant damage, you may be able to make a “diminished value” claim against the at-fault driver’s insurance company, where you recover the difference between the pre- and post-accident value of your car. (Note: The vehicle’s “actual cash value” is used in making this determination. More on this in the following section.) It’s not usually an option to make a “diminished value” claim against your own insurance company, however.

Your Vehicle’s “Actual Cash Value.” After an accident, if your vehicle has incurred enough damage, the insurance company can declare it a “total loss” and, rather than pay to have the car repaired, they’ll pay you the “actual cash value” of the vehicle just before the accident. This usually happens if the cost of fixing the vehicle exceeds the cost of replacing it, or if the damages were so extensive that the insurer is obligated to give the vehicle a “total loss” designation.

The insurance company arrives at the vehicle’s “actual cash value” by considering the factors we discussed in the previous section. But again, if you disagree with the adjuster’s valuation, you can ask for documentation that supports the insurance company’s position, and you can provide the adjuster with any evidence that supports your own valuation of the vehicle.

It’s important to point out that, if your vehicle is deemed a “total loss,” but you still owe money on it, the insurance company isn’t obligated to pay off your car loan. They’re only obligated to pay you the vehicle’s “actual cash value” in a lump sum.


If you've been involved in a car accident within the last three years, please consider taking our car accident survey so that we can include your experience in the published results of Martindale-Nolo's 2016 Car Accident Survey. Your confidential participation will help inform others about their situation and options before dealing with their car accident.

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