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What Is Diminished Value And How Does It Affect Car Insurance Claims

When we purchase car insurance, we would expect to be totally covered for the damage sustained to our vehicle and be properly finance. Also, if a vehicle is totaled, we would expect to get enough money to buy a new one. Well, these things do not match the grim reality. The harsh truth is that the companies will reimburse you after they calculated the diminished value of the car. Find out more about what is that. Also, check our blog for more info and get a car insurance quote for free.

car-insurance-rates1Diminished value is the difference in market price for a vehicle before and after an accident. Pay attention, because this is different from depreciation, which refers to a drop in value over time. No matter if the car was repaired using original manufacturer’s parts, the value of the car will be less than it was before the accident.

Most car insurance companies in the United States calculate diminished value using a formula called 17c. The name is derived from its use in a Georgia court case where the concept was first established.

The first thing insurers do is to calculate the car’s value, using various list, official prices, National Automobile Dealers Association’s (NADA) appraisal and so on.  Insurance companies commonly apply a 10% cap, also known as the base loss of value, to the sales value estimated by NADA. So, the maximum amount for diminished value claims are 10% of the NADA appraisal.

Then, the companies apply a damage multiplier, in order to adjust the base loss estimates. The base loss of value is multiplied by begins at 0.00 for cars with no structural damage or replaced panels, and can go as high as 1.00 for cars with severe structural damage. After that, they apply a mileage multiplier, in the same manner as above.  When the whole calculus is finished, the company will give you an answer regarding their claim settlement.

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