The “Contents Holdback” Trap and How to Escape It

The “Contents Holdback” Trap and How to Escape It

The contents holdback is the process whereby the insurance company makes sure that you, the policyholder, actually replace your damaged property. It starts in the policy with the terms and conditions section. Most policies state that property claims are settled at the Actual Cash Value (ACV) of property. The insurance company calculates the replacement value of your property, and then deducts an amount of depreciation based upon age and condition of the property.

Some policies settle claims at Replacement Cost Value (RCV), but even when they do, they “holdback” the depreciation until the policyholder spends the money to replace the damaged or destroyed property. Once the policyholder can prove he has spent the money to replace the property, the insurance company will release the holdback amount.

For example, your stereo system is fire damaged, and replacement cost is $2,000. The system was five years old, and the depreciation amount was $500. The insurance company will pay $1,500 up front and hold back $500 until you buy a new $2,000 stereo.

Here’s the “Contents Holdback” trap. The insurance company expects you to replace your property, but won’t pay you enough money up front to replace the property. So, you’ve got to find the money somewhere to make your purchases, and only then will the insurance company release the holdback amount to you. Oh, by the way, you usually only have 180 days from the date of loss to make your purchases and collect your holdback, or time expires.

Here’s the Escape Strategy

1. You must challenge every depreciation calculation that the insurance adjuster makes. Force the adjuster to document EVERY calculation. That alone will likely significantly decrease the depreciation amount, and increase the ACV you receive up front.

2. Make certain that you include every possible item of property in your claim. Even though some of your property may be obsolete or old, it still has a value. For example, even though you can no longer fit into your expensive business suit or formal dress, you should still be paid to replace it. If you are paid for enough of those types of items that you will likely not replace, it will help make up the holdback difference.

3. If you have a property claim, call a Public Adjuster to advise you. They are claim specialists who can help you collect more money in your claim.

This strategy won’t entirely fix the problem, but it will fix a large part of the problem.

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