What is Hold Back?
Hold Back is a term commonly used in property insurance policies, particularly in situations involving damage claims. When an insured individual files a claim for damage, the insurance company may withhold a portion of the payment as a “hold back.” This withheld amount is typically released once the policyholder provides proof that repairs or replacements have been completed.
In homeowners insurance, for example, the hold back may apply in cases where damage to a property requires repairs. The insurer initially pays the Actual Cash Value (ACV) of the damaged property, which is the depreciated value, and the remaining amount, known as the Replacement Cost Value (RCV), is held back. Once the insured provides receipts or evidence that the repairs have been made, the hold back is paid out.
The purpose of the hold back is to ensure that policyholders actually use the claim money for the intended repairs or replacements. Without this measure, there could be instances where the insured does not complete the necessary work, which could lead to further damage or reduced property value.
In business insurance, hold back clauses may also apply to property or equipment coverage, ensuring that the settlement fully accounts for restoring the insured item to its pre-loss condition.