In salvage terms, what option does a policyholder have if they wish to keep the salvage?

• A. They must pay for it separately
• B. They must accept a smaller settlement
• C. They cannot keep it under any circumstance
• D. They are entitled to a full payout

Answer: (B)

In salvage terms, when a policyholder wishes to keep the salvage, they typically must accept a smaller settlement. This is because the insurance company generally calculates the claim amount by factoring in the value of any salvage that remains after a loss. If the policyholder retains the salvage, the insurer will reduce the settlement offer to account for the value of the salvage that the policyholder has chosen to keep.

This approach helps to ensure that the insurance company is not paying out the full value of a loss while the policyholder also retains an asset that could be sold or reused, thereby mitigating the overall loss. The rationale is tied to the principle of indemnity, which states that an insured should not profit from a loss. Therefore, by keeping the salvage, the policyholder essentially has a stake in the total value of their claim, resulting in a reduced payout.