Final answer:
The false statement about salvage in insurance terms is that the insurer may deduct the salvage value from the amount paid to the claimant for the loss. The insurance company typically takes ownership of the salvage and sells it independently of claimant payouts. Cost-sharing methods like deductibles, copayments, and coinsurance are used to reduce moral hazard.
Step-by-step explanation:
In insurance terms, salvage refers to the remaining value of the property after a loss has occurred and the property is deemed to be partially or completely irreparable. Insurers take salvage into consideration when settling a claim. However, stating that the insurer may deduct the salvage value from the amount paid to the claimant is false. In fact, it is common practice for insurers to take possession of the salvage and sell it to recoup some of the loss payment made to the policyholder. At this point, the salvage value is not deducted from the claimant’s settlement; instead, it's a separate action taken by the insurer after the claim has been settled.
To reduce moral hazard, insurers implement cost-sharing policies like deductibles, copayments, and coinsurance. Deductibles are initial amounts that must be paid out of pocket before insurance covers the rest. Copayments are small fixed fees paid by policyholders for specific services, and coinsurance is a percentage of the cost that the policyholder is responsible for after deductibles are met.