If you recently got into a common car accident, then you might be wondering how it impacts the value of your car. After all, a damaged vehicle has the ability to influence how much your car is worth. Even if you don’t plan on selling your car anytime soon, knowing your car’s value is still good information to have. Continue reading to learn more about how accidents impact the values of cars, as well as the different types of values assigned to cars involved in accidents.
Car accidents and vehicle value
Whether you’re debating buying a used car that was in an accident or someone recently had an accident in your car, and you want to know how much you would get for it if you sold, you’ve come to the right place.
As you probably already know, cars are more prone to depreciation than many other material items. In fact, cars are one of the items that depreciate the fastest. Data suggests that new cars depreciate as much as 20% the second that you drive off the lot. During the first two to three years of car ownership, your car can depreciate up to an additional 60%. As you can imagine, after you get into a car accident, the value of your car will be even lower. Automotive experts estimate that vehicles involved in accidents can depreciate up to 25% faster than the average depreciation rate. That said, the exact percentage will depend on the car's age and its condition before and after the collision.
Factors that impact your car’s value after an accident
There are a number of factors that will impact the value of your car following a collision. These factors include the value of your car before the accident, your car’s history of prior damage, and more. We outline each in detail below:
The value of your car before the accident
First, the value of your car before the accident will partially determine its value after the accident. To calculate a vehicle’s value, you must assess the car's age, its make and model, its features, and its style.
Your car’s history of damage
Your car’s history of damage will also be considered when calculating its post-accident worth. If your car was involved in other accidents in the past or suffered damage due to another type of incident, this could further drive down its worth. However, this will depend on whether or not the vehicle was fully repaired after the previous damage. In addition, how well you have maintained your car in the years following prior damage can also influence its current value. Generally speaking, the more accidents that your car has been involved in, the lower the car’s value will be.
The severity and type of damage suffered
If your car has suffered damage in the past, then the severity and type of damage will be considered. For instance, fender benders are minor collisions. That said, you should still always call your insurance after a minor accident, which means that they are less likely to influence the value of your car than a head-on collision.
Why the value of a car goes down after an accident
Although you likely knew that the value of your car would go down after an accident, you may not understand why. That’s what we’re going to get into now. The reality is that car damage can have long-lasting effects on a vehicle. Thus, the more times that your car is involved in an accident, the less safe and reliable it can become. Damage can result in serious wear and tear to a car. Even if you have your car repaired, there’s a chance that the repair may not be adequate.
There’s also a chance that the repair isn’t performed correctly, or perhaps you could not afford a quality repair, and so you choose a quick fix that increases the odds of another problem occurring down the road. Another possibility is that you have a car part replaced after an accident, but the replacement part is used or is of a lower quality than the original. Any of these situations are why your car’s value would be diminished following an accident. Thus, you should expect your car value to decrease if you get into an accident that is more severe than a fender bender.
Diminished value
The amount of money that a car loses in value after an accident is known as diminished value. Diminished value is determined by calculating the difference between the vehicle’s market value before the accident and the vehicle’s market value of the accident, which is similar to the replacement cost in car insurance.
The two types of factors that are used to calculate diminished value are repair-related factors and claims-related factors. Repair-related factors include the quality of the replacement parts used in the repairs and how well the repair was performed. Meanwhile, claims-related factors come into play if an insurance company requires the car owner to repair the car at a specific auto body shop or use specific parts.
Please note that inherent diminution, which is the principle that all cars lose value after an accident, regardless of the other factors at play, is also considered when calculating diminished value.
Types of diminished value
There are two main types of diminished value to be aware of, and they are as follows:
Inherent diminished value
Inherent diminished value is the perceived loss of value of a car after an accident-related repair. With inherent diminished value, it is assumed that the car has been repaired back to its original condition, other than the general stigma attached to it for having been in a collision.
Repair-related diminished value
Repair-related diminished value is the loss of value of a car due to poor or questionable repairs following an accident. Examples that might lead to repair-related diminished value are mismatched paint colours, generic car parts being used to replace name-brand ones, or if the car emits a new noise when driving it.
Will a car insurance company pay for diminished value?
If you’re wondering whether your car insurance company will help you recoup your car's lost value following an accident, the answer is most likely no. In provinces with no-fault insurance systems, drivers cannot sue at-fault drivers for compensation over a car’s lost value.
In Canada, auto insurance policies are designed to cover direct losses, such as medical expenses or vehicle repairs. A reduction in a vehicle’s value is considered an indirect loss. Thus, compensation for diminished value is much more challenging than in other countries, such as the United States. That said, under the at-fault driver’s liability car insurance, you can still receive a payout to help cover the costs of the repairs.
Fighting for diminished value compensation in Canada
As mentioned, diminished value is not typically covered by insurance in Canada. There is no such thing as diminished value coverage. Thus, if a driver wants to be compensated for diminished value to a vehicle following an accident, they usually need to take matters into their own hands.
Taking matters into your own hands when it comes to diminished value coverage usually means going to court. To fight a claim in court, one party would typically need to sue the other. However, in some cases, they might even have to sue their insurance provider or the at-fault driver’s provider. Although some insurance providers might be willing to negotiate a settlement out of court to avoid the stress and complexity of a court proceeding, others may not be willing to do so. In either scenario, the burden of proof will be on the claimant, and proving how much value your car lost can be difficult.
Before filing a claim related to diminished value, consider the following:
The value of your car pre-accident
Depending on the value of your car before the accident, the value lost may not be significant enough to make a court case worth it. For example, if your car was already old, had structural issues, or had racked up many miles, chances are you are better off not filing a claim.
Whether you caused the accident
A second factor to consider is whether you caused the accident. If you were responsible for the accident that reduced your car’s value, the odds of winning your case are much slimmer.
The current value of your car
Lastly, you should carefully consider your car's current value before filing any type of diminished value claim. To find out exactly how much your car is worth, ask a professional mechanic (or multiple) to assess the value of your car. It is always best to get an independent appraisal from someone who doesn’t have a vested interest in the outcome.
How will others know my car was in an accident?
In certain situations, it is illegal to hide that a vehicle was in an accident in Ontario, just as it’s illegal not to report a car accident. Owners in Canada are legally required to disclose damage over $2,000 to potential buyers. In addition, accidents will appear on vehicle history reports, which are available through a number of outlets, such as Carfax, Carproof, and Transport Canada. Thus, you should never attempt to hide that your car was in an accident when attempting to sell it.
Contact BrokerLink to find out more
The reality is that your car’s value is likely to be impacted following an accident. The same goes for your insurance rates. When you are at fault, accidents almost always affect car insurance rates. The only exception to this is if you have accident forgiveness coverage and it was your first at-fault accident. Otherwise, you can bet that your rates will be raised the next time that your policy is renewed. Similarly, if you get into any kind of serious accident, it is nearly guaranteed that the value of your car will go down, even by a small amount.
To find out more about how accidents impact both car values and car insurance rates, contact BrokerLink today. We can explain what to do if you’re in a car accident, including how to file an insurance claim, and explain how the different types of auto insurance can protect you. A few types of car insurance a broker can help you with include:
Get in touch with BrokerLink today to get started!
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