What is Salvage Value
and
How is Salvage Value related to Depreciation and Insurance Claims

While it may not be useful to you, almost all things tend to have some salvage value. People do buy and sell used brick, or furniture. Some things, of course, have a salvage value of zero, such as paint -- when it's no longer useful, you cover it up or throw it away. Even things substantially and irretrievably damaged by a loss, an auto fire or wreck, for example, are worth something as scrap.

Most laws and insurance policies allow the insurer pay your claim for a damaged thing, and the insurer may choose to keep it. If it makes that choice, the insurer might sell it; sometimes they might offer to sell it back to you, for a fraction of the salvage value. Insurers consider this possibility to recover some of the damages paid out on a claim. Insurers expect their adjuster to consider the possibility of salvage in all insurance claims.

You will probably find salvage value addressed by adjusters in auto claims, in commercial claims for stock and inventory, or in residential contents claims with residual value. In situations where salvage is taken by the insurer, the adjuster will use salvage companies who specialize in the purchase and sale of those things.

For accounting purposes, in the business world, things are depreciated to the salvage value. For example, if a piece of machinery costs 100 dollars to replace, and has a useful lifetime that lasts 5 years, straight line depreciation would reduce its book value by an equal amount each year. At the end of the five year useful life of the machine, if it is worth 5 dollars as scrap, then a straight line depreciation could be taken for 19 dollars over 5 years, for a total of 95 dollars. In the case where the machinery is worthless, even as scrap, after 5 years, then straight line depreciation would be 20 dollars per year, for a total of 100 dollars.

Note, however, that for the purpose of estimating "Actual Cash Value" in typical residential and small commercial claims, salvage value does not figure in the adjuster's process for estimating ACV. If there is some residual value in the damaged thing, however, the salvage value may be shown on the estimate if the insured wants to buy back the salvage.

Click for more information on:

• Actual cash value ("ACV")
• Lifetime, and how it relates to depreciation and insurance claims
• Depreciation;
• How depreciation relates to your insurance claim, and;
• An example of how depreciation is calculated, and a claim is paid.