Texas Property and Casualty License Practice Exam

Which statement is true regarding salvage value after a loss?

1. The insured can use the salvage for personal gain

2. The insured must relinquish what's left of the damaged property

3. The insured can collect full loss value without returning remnants

4. The insured maintains ownership of the salvage for future use

The correct answer is: The insured must relinquish what's left of the damaged property

The choice stating that the insured must relinquish what's left of the damaged property is accurate because, in most insurance policies, the principle of indemnity applies. This means that the insured should not profit from their loss. When an insurance claim is paid out for the full value of the loss, the insurer typically acquires the rights to any salvageable items that remain. This allows the insurer to recover some of their losses by selling or reusing the salvage. In situations of damage or total loss, the insured is generally required to surrender any remaining pieces of the property that were covered under the insurance policy. This requirement helps ensure that the insured does not receive both a full payout for the loss as well as retain the salvage, which could lead to an unjust enrichment situation where the insured benefits beyond their actual loss. Understanding this principle is crucial for insurance professionals, as it underscores the importance of adhering to the terms of an insurance policy, particularly concerning salvage rights.