Does Auto Insurance Pay for Diminution of Value?


You've just signed paperwork and left a deposit for a $25,000 new vehicle. You drive off the dealer's lot and something happens something you don't even realize. The vehicle, now yours and no longer brand new, automatically drops in value. Despite this change in value you will still be responsible for paying the full $25,000 on your loan but does your auto insurance pay for diminution of value to cover the difference?

What Your Auto Policy Covers

Your automobile insurance policy may have two or three main sections. These are usually liability coverage, medical coverage, and property damage coverage.

The liability coverage includes bodily injury liability and property damage liability. These coverage options pay for medical bills and property damage you may cause another party to suffer if you cause an accident.

Medical coverage will pay for your own medical bills if you are in an accident. If another person were to cause an accident, this coverage would pay before the other person's bodily injury liability would pick up the difference.

Property damage coverage includes comprehensive and collision coverage. These coverage options pay for damage to your own vehicle if you cause an accident (collision) or are the victim of some other type of risk, like vandalism or theft (comprehensive).

How Comprehensive and Collision is Paid

If your car is stolen, vandalized, involved in an accident, or is victim of some other covered risk you will file a claim with your adjuster. The adjuster will immediately look up the Kelley Blue Book value of your car. If the damages fall under the Kelley Blue Book value they will be paid in full, minus your deductible. If they are higher than the Kelley Blue Book value the car will be considered a total loss and you will get nothing over the blue book value listed.

In short, your auto insurance does not pay for diminution of value. You will only receive enough money to indemnify you, or make you whole, which means you'll only receive the value of the item lost not what you still owe on it.

The only exception to this rule is if you purchase gap coverage. Gap coverage will ensure that your loan is paid off in the event you owe more than your car is worth. You will not, however, receive that difference if it comes to repairing or replacing your car.

Diminution of value is important to consider when shopping for car insurance. Make sure you check the current value of your car each year. Doing so will enable you to adjust your property damage limits or deductibles accordingly so that you can avoid paying for coverage you can't use.

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