Texas All Lines Adjuster Practice Test

In an insurance context, what does "salvage" allow the insurer to do?

1. Insist on keeping all salvage items regardless

2. Return the damaged property to the insured

3. Keep the salvage if they have fully indemnified the insured

4. Sell salvage with no compensation to the insured

The correct answer is: Keep the salvage if they have fully indemnified the insured

In the context of insurance, the term "salvage" refers to the right of an insurer to recover costs by selling damaged property after a claim has been paid. When an insurer indemnifies the insured for a loss, they may take possession of the damaged property, which is now considered salvage. This option allows the insurer to partially offset their loss through any proceeds obtained from selling the salvaged property. The concept is rooted in the principle that insurance is designed to return the insured to their pre-loss position without allowing them to profit from the loss. Once the insurer has fully indemnified the insured for the total loss, they then obtain the right to salvage the property as a means to recoup some of their expenses. This is a standard practice within the industry and is typically outlined in the policy details. Other options do not align with the standard practices for salvage rights. For instance, insisting on keeping all salvage items regardless does not consider the rights of the insured; simply returning the damaged property would negate the purpose of salvage; and selling salvage with no compensation to the insured does not adhere to indemnity principles since it does not account for compensation towards the insured's loss.