Updated on October 4, 2023
The meaning of the term salvage in insurance and its importance is explained here.
Meaning of Salvage
The term “salvage” refers to damaged property or assets that an insurance company takes possession of to minimize its financial losses after settling a claim. When an insurance company pays a claim to a policyholder for the property that has been significantly damaged, they may acquire ownership of that damaged property. This ownership allows the insurer to recover some of the funds they’ve paid out in the claim.
Understanding the term salvage further
Ownership Transfer – When an insurance company pays a claim for extensively damaged property, they typically become the owner of the damaged property, despite its condition.
Minimizing Losses – The primary objective of acquiring salvage is to reduce the financial losses incurred by the insurance company by exploring ways to recover some of the claim payment.
Salvage Rights – Insurers receive specific rights over property on which they’ve paid claims, allowing them to decide how to manage the salvage, whether through disposal, repair, or resale, to mitigate their losses.
Types of Salvage – Salvage can take various forms, including damaged vehicles, lost cargo at sea, or historical artefacts, and insurers may have the authority to recover and handle these diverse types of salvage.
Salvage Charges – Salvage charges encompass the expenses associated with recovering, managing, and disposing of salvaged property, covering costs like towing, storage, repair, or resale, with the aim of offsetting the claim payment.