Does an insurance claim affect car resale value?
9 minute read Published on Feb 12, 2025 by BrokerLink Communications
Not everyone realizes that a vehicle's value drops immediately after it's been in an accident. Whether it's a minor fender-bender or a more serious collision, even with perfect repairs, the car’s resale value will take a hit, whether you submit an insurance claim or not.
The impact of an insurance claim on our car's resale value
Does an insurance claim affect your car's resale price? Yes. One of the main factors in determining a car’s resale value is its insurance claims history. If a vehicle has a record of one or multiple insurance claims, it can let buyers know there may be potential future issues with the vehicle, which typically results in a lower offer.
On the flip side, a car with a clean insurance record—no major accidents or multiple claims—tends to retain a higher resale value. It shows the vehicle has been well-maintained and carefully driven.
When selling, being upfront about the car's history is important. Buyers might ask for this information, and hiding it can lead to mistrust or even legal trouble.
How will the buyer know about the vehicle's claims history?
Car buyers have the right to know the full history, past use, and condition of a vehicle, along with any important details that could influence their decision to go through with the purchase. In fact, in Canada, car owners are legally required to let potential buyers know about any damage over $2,000.
Therefore, when buying a used vehicle, the buyer may ask for a copy of their vehicle's claims history report. They can also purchase vehicle history reports from CARFAX, Carproof, or Transport Canada. These reports detail important information about the vehicle's history, including damage history.
It's important to note that even if you don't submit an insurance claim, some repair shops and mechanics participate in the CarFax program, where they report any repairs made to vehicles. Therefore, even if it's not on your claims history, the repairs may still show up on the vehicle's history reports.
How much does a car accident devalue a car in Canada?
As you might be aware, cars lose value more quickly than most other items, and they’re among the fastest to depreciate. Research shows that a new car can drop in value by as much as 20% the moment you drive it off the lot, and over the first two to three years, it can lose up to an additional 60%.
After an accident, vehicles depreciate even faster. Experts estimate that cars involved in collisions can depreciate up to 25% faster than usual, although the exact figure depends on the car’s age and condition both before and after the accident. This is known as diminished value.
What is diminished value?
Diminished car value, or accelerated depreciation, is the drop in a vehicle’s worth after it's been repaired following an accident, even if it’s restored to its original condition. Unfortunately, the fact that it was in a collision leaves a mark. No matter how perfect the repairs are, the car’s resale value is likely to take a hit just because it has a history of being in an accident.
Diminished value is calculated by looking at the difference between your car's market value before the accident and its market value after the accident. It's a lot like how replacement costs are determined in car insurance. There are three types of diminished value:
Inherent diminished value
Inherent diminished value is the drop in a car’s worth after it’s been repaired from an accident. Even if the car is fully fixed, the fact that it was in a collision makes it less appealing to buyers, which can noticeably reduce the amount you’d get if you try to sell or trade it in. Many buyers are skeptical about cars that have been in accidents.
Immediate diminished value
Instantaneous diminished value refers to how much your car is worth right after the accident happens. This is the point when your insurer assesses the cost to repair the car, focusing on getting it back to its original condition, but not necessarily its original value.
While this is the kind of diminished value used in court cases, it's not often applied when filing a diminished value claim with an insurance company. That's because insurers usually cover the cost of repairs after a covered accident as long as you have the right coverage in place.
Repair-related diminished value
This type of diminished value happens when a car loses value due to poor-quality repairs after an accident. For instance, if the paint doesn’t match perfectly or if aftermarket parts are used instead of original manufacturer parts, the vehicle’s value drops even more. In these cases, the repair quality adds to the loss in value beyond the hit it already took from being in the accident. This drop in value comes from poor or careless repairs done on your vehicle.
The 17C diminished value formula
If your vehicle is in an accident and you want to estimate its diminished value, the 17C method can give you a good idea of what to expect. Keep in mind, though, that your insurance company might not use this exact method, but it’s common enough to give you an idea of how they might calculate your car’s value after the accident. Here’s how the 17C formula works:
- (Base Loss of Value (10%) x Damage Modifier) x Mileage Modifier.
Basically, you start by finding out your car's value, pre-collision. Then, you add an automatic 10% drop in value. Next, you factor in the extent of the damage and the car’s current mileage. Let's break it down further:
10% cap
Insurance providers automatically apply a base loss of 10% to the value of your car after it's been in a car accident. To estimate this, you'll need to calculate 10% of the value listed in Kelley Blue Book Canada. So, let's say your vehicle is worth $50,000.
- $50,000 x 0.10 = $5,000
Damage multiplier
Your insurance company will evaluate the damage to your car and assign a number between zero and one to indicate how severe it is. The more severe the damage, the higher the modifier and the bigger the drop in value. Small dents and scratches (0.00-0.25) won’t hurt your vehicle’s value as much as moderate (0.50), major (0.75), or severe (1.00) structural damage. Mechanical damage tends to hit the hardest, as those repairs are usually the most expensive.
That number is then multiplied by the 10% base loss of value. Let's say your vehicle sustained major damage:
- 5,000 x 0.75 = $3,750
Mileage multiplier
Your car’s value is also adjusted based on its mileage, again from zero to one. A newer car can hold more value after an accident, even if the damage is more noticeable. Fewer miles generally mean a higher post-accident value. Buyers and traders are often willing to overlook repair costs if they're getting a newer vehicle that will likely last longer. The same goes for popular models:
- 1.00 = 0–29,999 kilometres
- 0.80 = 30,000–64,999 kilometres
- 0.60 = 65,000–94,999 kilometres
- 0.40 = 95,000–129,999 kilometres
- 0.20 = 130,000–159,000 kilometres
- 0.00 = 160,000+ kilometres
Let's say your $50,000 vehicle has 110,000 kilometres on it:
- $3,750 x 0.40 = $1,500
This means your value diminished from $5,000 to $1,500. Remember, the 17c formula is a simple way to estimate your car’s value after an accident, but it’s just a starting point. The best approach is to talk to your insurance provider for a more accurate assessment.
Why does the value of a car diminish after an accident?
The truth is that car damage can have lasting effects on your vehicle. The more accidents your car is in, the less safe and reliable it can become. Even with repairs, there’s always a chance they might not be enough.
Plus, sometimes, repairs aren’t done correctly, or you might opt for a quick, cheaper fix if you can't afford a high-quality one, which increases the chances of future problems. You could also end up with a replacement part that's used or lower quality than the original. Any of these factors can lead to a drop in your car’s value after an accident. So, if your car is in a more serious accident than just a minor fender bender, you should expect its value to go down.
Does car insurance cover diminished value in Canada?
If you’re wondering whether your car insurance company will cover the loss in your car’s value after an accident, the answer is probably no. In fact, in provinces with no-fault insurance, like Ontario, drivers aren’t allowed to sue the at-fault driver for the loss in value of their vehicle.
Frankly, it can be tough to get compensated for the diminished value of your car in Canada. Auto insurance policies here are designed to cover only direct losses, meaning most insurance companies will pay for repairs to bring your vehicle back to its pre-accident condition or declare it a total loss if that's the cheaper option.
Unfortunately, any decrease in value after repairs is considered an indirect loss and isn’t covered by your policy. As such, your claim will be denied if you try to file for diminished value. If the repair costs exceed the car's value, the insurer will typically write it off, but the decision is entirely up to them. Often, they’ll choose to repair the vehicle because it’s the less expensive route.
Is there any official diminished value coverage in Canada?
No. The Insurance Bureau of Canada states that no province or territory in Canada offers coverage for diminished value or accelerated depreciation. Because there isn’t any official diminished value coverage in Canada, so you’ll need to take action yourself to recover the loss in your car’s value. While some Canadian insurance companies have quietly paid out diminished value claims, in most cases, drivers have had to go to court, either suing their own insurer or the at-fault driver’s provider, if allowed.
What can I do if my car is worth less after an accident?
If you plan to keep your car and not sell it, you don’t have to worry about its diminished value. However, if diminished value is something you're concerned about, here are a few options to consider after your car has been in an accident:
Opt for a payout instead of repairs
If your car isn’t declared a total loss (where repair costs exceed its worth), you can appeal for a total loss decision instead. This way, you'll get a cash payout based on your car's pre-accident value rather than ending up with a repaired car that's worth less.
Avoid a salvage title
If your car is totalled, you may have the option to buy it back with a salvage title, but it will be worth much less because it won’t be repaired and will carry the salvage designation.
File a diminished value claim
If you're in a province or territory where it’s allowed, like British Columbia, you might be able to recover part of your car’s reduced value.
Contact BrokerLink to learn more today
The truth is, your car’s value will likely take a hit after an accident, and so will your insurance rates if you’re at fault. Unless you have accident forgiveness and it’s your first at-fault accident, your rates are almost certain to go up when your policy renews. On top of that, any serious accident will almost always reduce your car’s value, even if just by a little.
If you want to learn more about how accidents affect both your car’s value and your insurance rates, reach out to BrokerLink. We can guide you through the process of filing a claim and explain how different types of auto insurance options can protect you.
You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.