Can You Get Diminished Value on a Total Loss?
Demystify vehicle insurance: Understand why diminished value doesn't apply to a total loss and what compensation you receive.
After a vehicle accident, many individuals question the compensation they might receive. A common confusion is whether “diminished value” applies when a vehicle is declared a “total loss.” This article clarifies the distinct definitions of total loss and diminished value, explaining why these two concepts do not intersect in insurance payouts.
Understanding Total Loss
A vehicle is declared a total loss when repair costs exceed a percentage of its pre-accident value, or when damage makes it unsafe to repair. This threshold varies by state, often ranging from 50% to 100% of the vehicle’s actual cash value (ACV). For instance, if a state has a 70% threshold, a car worth $10,000 would be totaled if repairs exceed $7,000.
The actual cash value (ACV) represents the fair market value of the vehicle immediately before the accident, considering its age, mileage, and overall condition. This is the amount an insurance company pays out if your car is totaled, reflecting its value at the time of the loss, not its original purchase price.
Defining Diminished Value
Diminished value refers to the reduction in a vehicle’s market value after an accident and subsequent repair, even if repairs are completed to a high standard. This loss occurs because the vehicle has an accident history, making it less appealing to potential buyers. A car that has been in a major accident has a lower resale value than a comparable vehicle with no accident history, even with perfect repairs.
There are three types of diminished value: inherent, repair-related, and immediate. Inherent diminished value is the most common, representing the loss in value due to the vehicle having an accident on its record. Repair-related diminished value applies if repairs are substandard, while immediate diminished value refers to the loss before repairs are even made. Diminished value claims apply when a vehicle has been repaired, not when it is a complete loss.
Why Diminished Value Does Not Apply to Total Loss
Diminished value does not apply to a total loss scenario due to the definitions of these terms. Diminished value is predicated on a vehicle being repaired but still losing market value due to its accident history. This concept assumes the vehicle will return to the market for resale, albeit with reduced appeal.
Conversely, a total loss means the vehicle is irreparable or too costly to repair, and is not returned to a drivable, marketable state. Instead, the insurance company compensates the policyholder for the vehicle’s actual cash value before the accident occurred. Since there is no repaired vehicle to suffer a loss in value, the principle of diminished value becomes irrelevant.
What You Are Compensated For in a Total Loss
When a vehicle is declared a total loss, the primary compensation you receive is its actual cash value (ACV) at the time of the loss. This amount reflects what it would cost to purchase a comparable vehicle just before the accident. The insurer subtracts any applicable deductible from this payout.
Beyond the ACV, a total loss settlement may include other reimbursements, depending on your policy and state regulations. These can include sales tax, title transfer fees, and registration fees for acquiring a replacement vehicle. Some policies may also cover rental car expenses for a period following the total loss. If you still owe money on a loan or lease for the totaled vehicle, the insurance payout will first go to the lienholder, and any remaining balance would then be paid to you.