Best Practices for Collecting in Volatile Times
MAY 3, 2022
An increasing interest in collections has arisen as an outcome of the isolation from the COVID-19 pandemic. Vintage clothing, Victorian jewelry, midcentury modern furniture, vintage Rolex watches, Chinese silver, autos, art and toys from the 1970s and 1980s (especially Star Wars action figures) have all increased in popularity. There’s no indication the interest in collecting these items is slowing down in 2022.
Do Homeowners Policies Cover Personal Property?
As collectors continue to build their collections, they should be aware that homeowners insurance policies typically have coverage limitations for valuable articles and collectibles. The "special limits" section of a policy provides coverage limitations on high-value items such as jewelry, fine art, furs, antiques, silverware, wine, wearable art, guns and memorabilia. Some homeowners policies insure valuables against fire; however, there’s often little to no coverage for stolen or lost items.
Unfortunately, many people discover this critical coverage limitation in the most desperate of times: when a prized item goes missing and they file an insurance claim. For avid collectors, this occurrence can mean thousands of dollars in uninsured losses, on top of the pain of losing items of sentimental value.
To help mitigate damage before a loss occurs, USI Insurance Services provides clients with risk management strategies. These include:
- Identifying exposures that exceed special limits restrictions
- Creating an inventory of collectibles
- Establishing values for collectibles
- Making risk management recommendations to decrease premium while maximizing asset protection
Better Protection — At a Lower Rate?
Valuable article policies differ by insurance company in terms of requirements and exclusions. Therefore, it’s essential to work with a risk management partner that understands the valuables insurance space. Benefits of having a valuable articles policy can include:
- Worldwide coverage, whether the item is in transit, or in a safe
- Broadened coverage with fewer exclusions (flood and earthquake are often included)
- No deductibles apply if your item needs to be replaced or repaired
- Automatic coverage for newly acquired items
- Coverage for items on loan or consignment typically with prior approval
- Increased coverage due to market appreciation
- Coverage for theft and mysterious disappearance
USI’s risk assessment process includes a review of the policy, underwriting requirement and the valuation clauses in the policy. We advise clients on frequency of updated appraisals and the criteria for a qualified, professional appraiser.
A Note On Inventory and Appraisal
A common obstacle to valuable protection is that the collection has been obtained over a long period of time, so there’s no list or current valuation of items. This problem can be addressed with the same valuable articles coverage using a single amount (blanket limit) for the category you’re seeking to protect, like jewelry.
Blanket coverage applies to a group of items within a specific category (i.e., jewelry, furs, art, etc.). Typically, a value is applied to the group of items and a per-item limit is established. The per-item limit is the maximum amount paid if one item is lost. If the entire collection is lost, the client will be paid the total amount previously established for the specific category.
Scheduling involves creating a specific list of valuables and itemizing the replacement cost and description of each piece to be insured. This allows the collector to place an agreed value on each item.1 Further, the collector segregates high-value items and obtains broad coverage with enhanced protection for those items.
Insurance companies may require appraisals to validate the item, substantiate the value, and create a description used in the event of a loss. If and when a loss occurs, certain specialty insurance carriers offer clients 100% of the insured value, without factoring in the effects of depreciation. Further, if an item substantially increases in value, specialty carriers may reach out to their clients to advise of the large increase in value and to recommend adjusting the policy accordingly.
How Valuable Article Policies Vary From Insurer to Insurer
Valuable article policies differ from insurance company to insurance company. It is important to understand the different coverage types, policy limits and restrictions. For example, it’s important to know if a valuables policy would pay a percentage more than the amount scheduled as protection against price appreciation. This is critical given how rapidly the value of precious metals can change within a relatively short period.
Certain policies require appraisals to be updated more frequently and also provide the client access to specific appraisers. In some cases, policies require appraisals for items with values as low as $5,000 and as high as $50,000. Generally, it’s best to reappraise items every three to five years, especially in times of market volatility like we are experiencing now.
Collectors and owners of valuable items should consider the following additional information:
- Certain insurance carriers offer discounts for valuables kept in a safe or vault with significant restrictions in coverage.
- Some carriers restrict coverage for items in transit and require notification and approval in order to retain full coverage.
- For a lost item that is part of an itemized pair or set, such as earrings, certain specialty carriers will provide coverage for the entire set if the carrier is provided with the remaining pieces.
Transporting insured collectibles often requires specific packaging and handling to avoid suspending coverage. USI’s personal risk experts can assist with vetted resources, including professionals who specialize in transporting insured collections.