State Farm Insurance License Practice Exam

What does the term "salvage" refer to in insurance?

1. Insured property that is completely destroyed

2. Insured property that is damaged and may be taken by the insurer

3. Property that is considered a total loss by the insurer

4. Insurance paid to the insured without claims verification

The correct answer is: Insured property that is damaged and may be taken by the insurer

The term "salvage" in insurance refers to property that has been damaged but is still recoverable. When an insurer determines that a loss has occurred, they may take possession of the damaged property in order to salvage any remaining value from it. This can occur after the insurer has compensated the insured for the loss. Salvaged items can be sold or repaired, helping the insurer to recover some of their costs. Understanding salvage is important because it illustrates the process insurers use to mitigate their losses and highlights the distinction between total loss and recoverable loss. The protection that salvage provides is a common practice in the insurance industry, where financial responsibility is managed by minimizing losses through the recovery of damaged property.