Property and Casualty Insurance Practice Exam

How can salvaging goods benefit an insurance company?

1. It increases the overall claim amount

2. It can reduce the cost of a claim

3. It guarantees complete recovery of the loss

4. It negates the need for loss valuation

The correct answer is: It can reduce the cost of a claim

Choosing to salvage goods can benefit an insurance company primarily because it can reduce the cost of a claim. When an insured party experiences a loss, the insurance company typically has to pay for the replacement or repair of the damaged property. If the insured can salvage some of the goods, the insurer can cover a smaller amount, thereby minimizing its financial outlay. Salvaging often involves the process of recovering and disposing of damaged items, which can be sold or reused, thus offsetting some losses. This means that instead of paying the full amount for brand-new items, the insurance company can mitigate its expenses, making salvaging a cost-effective strategy.