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Diminished value is the loss of value a car experiences after being in an accident, even if it has been repaired. This is due to the stigma attached to owning a damaged car. Insurance policies can compensate car owners for this loss of value if someone else was at fault for the accident.
Diminished value is a term used in the auto industry to describe how a car that has been in an accident is often valued at less than if it had not been in an accident. Even if it has been properly repaired, the car will not have the same resale market value as a car of the same make and year that has not been in an accident. As a result, the diminished value is the difference between the market value of the car if it had not been damaged and the amount it is sold for. Many insurance companies offer policies that compensate car owners for this depreciation in value, as long as someone else was at fault for the accident.
When a person with car insurance is in an accident, the insurance company will usually pay a claim that the person can use for repairs. Even if the car is repaired to the point where it runs smoothly and looks exactly the same as it did before the accident, there is often a stigma attached to the car in the eyes of potential buyers. This concept is known as diminished value, which is the amount of value the car loses after being involved in an accident.
As an example of how this concept works, imagine a man who owns a car and is in an accident with it. The car is perfectly repaired and the man decides at some point to sell it. A car of the same make and year typically sells for $20,000 US dollars (USD). Once the owner discloses the accident to potential buyers, the best offer he receives is $12,000. In this case, the diminished value is $8,000 USD, which is the difference between the normal market value of $20,000 USD and the $12,000 USD received.
The reason diminished value exists is that used car buyers will often be hesitant to own a car that has been involved in an accident. Even if the repairs are successful, the idea that the car is damaged in some way still lingers. Since that is the case, car dealers who have been in accidents have no choice but to sell the car at a discount.
Fortunately for car owners, there is a way to recover the diminished value. There are certain insurance policies that allow protection against the loss of value of a car involved in an accident. In addition to paying for repairs, these policies will also help offset lost value, as long as the policyholder was not at fault in the accident.
Smart Asset.
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