What does "diminished value" refer to in auto insurance?

Diminished value in auto insurance specifically refers to the decrease in the resale value of a vehicle after it has been involved in an accident and subsequently repaired. Even if the vehicle is restored to its pre-accident condition in terms of functionality and safety, the market perception often dictates that a car that has been in an accident is worth less than an identical vehicle that has never been in an accident. This reduction in value is what is termed "diminished value."

Understanding this concept is important for policyholders, as they may seek compensation for this loss, especially if they plan to sell the vehicle in the future. Repair costs, the loss covered by insurance policies, or the deductible are separate elements that do not directly address the lingering impact on the vehicle’s value after repairs have been made.