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In insurance, salvage refers to the remaining value of damaged property after a loss. Insurers may take ownership of this property to recover some costs after compensating the policyholder.

What is Salvage in Insurance?

When you hear the term “salvage” in the context of insurance, it generally refers to the residual value of a property that has been declared a total loss by the insurer. This means the property has been so significantly damaged that the cost of repair would exceed its current market value. In business insurance, this could include items such as vehicles, machinery, or inventory.


Imagine a manufacturing company has a fire that destroys several of its machines. The insurance company assesses the damage and determines that the cost to repair the machines would be higher than their market value before the fire. The insurer then decides to declare these machines as a total loss and pays the company the market value of the machines before the fire. The insurer now owns the damaged machines, which still have some residual value. This residual value is referred to as salvage. The insurer may sell these machines for parts or scrap to recover some of the costs they paid out to the policyholder.

Salvage Graphic Insurance Glossary

Key Components of Salvage

There are several key components to understanding salvage in the context of insurance:

  1. Assessment of Total Loss: The insurer must first determine whether the damaged property is a total loss. This involves evaluating whether the cost of repairs exceeds the property’s pre-damage market value.

  2. Residual Value: After a total loss is declared, the damaged property still holds some value. This residual value is what is referred to as salvage. Insurers often have a network of buyers who are interested in purchasing salvage items for parts or refurbishment.

  3. Recovery Process: The insurer will attempt to recover some of the costs by selling the salvage. This process is crucial for the insurer to minimize the financial impact of the claim.

Types of Salvage

Salvage can take various forms depending on the type of business and the nature of the damaged property. Here are four common types of salvage covered in business insurance:

Vehicle Salvage

This is one of the most common forms of salvage. If a business vehicle is damaged beyond repair, the insurer will pay out the market value of the vehicle and then take ownership of it. The insurer may sell the vehicle for parts or scrap metal.

Machinery Salvage

In industries such as manufacturing or construction, machinery can be extremely costly to replace. If machinery is damaged beyond repair, it becomes salvage. The insurer will then sell the machinery for parts or scrap.

Inventory Salvage

Businesses that keep significant stock or inventory can experience situations where this inventory is damaged. Even if the inventory cannot be sold in its original form, it might still have value as salvage. For example, damaged goods might be sold at a discount or for parts.

Property Salvage

This includes buildings or structures. If a business property is damaged and deemed a total loss, materials from the structure can still be salvaged. Items like bricks, metal, or wood can be reclaimed and sold.

How Insurance Covers Salvage

When a claim is filed, the insurance company assesses the damage and determines whether the property is a total loss. If it is, the insurer compensates the policyholder for the market value of the property before the damage occurred. This payout typically represents the maximum amount the insurer would have to pay under the policy.

After compensating the policyholder, the insurer takes ownership of the damaged property. This transfer of ownership is important because it allows the insurer to recoup some of the costs by selling the salvage.

Here’s how the process typically works:

  1. Assessment: The insurer assesses the damage and determines if the property is a total loss.
  2. Compensation: The policyholder receives a payment equivalent to the pre-damage market value of the property.
  3. Ownership Transfer: The damaged property is transferred to the insurer.
  4. Salvage Sale: The insurer sells the salvage to recover part of the payout made to the policyholder.

This process helps insurers manage their losses and can also benefit policyholders by allowing them to receive prompt compensation for their damaged property.

Salvage Photo Insurance Glossary