What does 'salvage' refer to in insurance terms?

In insurance terminology, 'salvage' refers to the remaining property after a loss has occurred. This concept is significant because, when an insured item suffers damage, the insurance company may recover value from what is left of that item once it is deemed a total loss.

For instance, if a vehicle is involved in an accident and the cost to repair it exceeds its actual cash value, the insurance company may declare it a total loss. However, if the vehicle can still be sold for parts or scrap, that remaining value is known as salvage. The insurance company may deduct this salvage value from the claim payout, which helps to mitigate their financial loss.

Understanding salvage is vital for both insurers and policyholders, as it affects the claims process and the final settlement regarding losses. This term captures the idea of recovering some value even after an initial loss, thereby illustrating a key aspect of risk management in insurance.