What does the salvage value refer to in insurance terms?

The term "salvage value" in insurance refers specifically to the sales value of damaged property. When an insured asset is deemed a total loss or sustains significant damage, the salvage value represents the amount that can be recovered from that asset, even in its damaged state. Insurers consider this value when determining the payout for a claim, as it affects the overall indemnity process.

In this context, it is important to understand that salvage value is distinct from initial market value, which reflects what the asset was worth prior to any damage. The estimated cost of repairs does not relate to salvage value either, as it focuses on the potential expenses required to restore the asset, rather than what can be fetched from a damaged item. Lastly, the total value of the property before damage is more concerned with pre-loss valuation rather than the residual value after damage has occurred, which is what salvage value addresses.