Property and Casualty Insurance Practice Exam

What is 'salvage value' in insurance terms?

1. Value of property before the loss occurs

2. Value of the claim rejected by the insurer

3. Damaged property that can be reconditioned

4. Replacement cost of the lost property

The correct answer is: Damaged property that can be reconditioned

Salvage value refers to the amount that can be recovered from damaged property that may still have some worth after an insurance loss. This can include items that are not completely destroyed and could be repaired or refurbished for use again, thus allowing the insurer to recoup some of the expenses associated with the claim. In the context of insurance, if damaged property can be restored or has remaining usable value, it is classified as salvage. This value is particularly relevant when calculating the settlement amount for a total loss claim, as the insurer can deduct the salvage value from the total loss payout, ensuring that the insured party does not receive a windfall. The other options do not align with the definition of salvage value. The value of property before a loss occurs refers to its pre-loss market value, not the potential recovery from damaged goods. A rejected claim denotes a scenario where the insurer does not cover the loss, which is unrelated to salvage values. The replacement cost concerns the expense incurred to replace lost property entirely, which again does not involve recovering value from damaged items.