The 3 Biggest Misconceptions About Insuring Valuable Items

by Carolyn Konecki
Carolyn-Konecki Most people are collectors. Some collect books or political campaign buttons, others collect sports memorabilia or shoes. While some collections are only sentimental, most have some value, if not significant value. One thing that collectors have in common is that they are passionate about their collections.I have been a personal insurance agent for 12 years and the focus of my practice is affluent and high net worth clients. I have seen inside many estate homes and have viewed many collections, ranging from art glass to collector cars. Over the years, I have discovered that many people have some or all of the following misconceptions regarding insuring valuable items:

Misconception #1 – You don’t need to have separate insurance for your valuable items because your homeowner’s policy includes that coverage.

Every home policy includes coverage for the dwelling, other structures, contents, and loss of use. But what exactly do the insurance carriers consider to be “contents”? Contents is the homeowner’s unscheduled personal property – things like clothing, furniture, electronics, decorator items, tools, food, make up, cleaning products – everything that is in a house but that is not attached to the house.

The amount of personal property on a typical homeowner’s policy is 75% of the dwelling value. That tends to be an accurate amount when the dwelling value is low, usually under $500,000. For example, a $400,000 homeowner’s policy will include $300,000 of contents coverage.  That automatic 75% ratio is generally not accurate when the dwelling is valued at over $1 million. High value homeowners typically have much less than 75% of their dwelling value in unscheduled contents. For example, a client who owns a $4 million home probably has much less than $3,000,000 of clothing, furniture, and kitchen supplies. Once the basics have been acquired, most affluent clients begin to accumulate valuable items such as jewelry, art, wine, antiques, and collector cars.

What most people don’t know is that all homeowner’s policies have a sublimit for various valuable items categories. A typical homeowner’s policy has a limit of only $1,500 for jewelry. A typical high-value homeowner’s policy has a limit of $10,000 for jewelry. Do you have more than $10,000 worth of jewelry? Do you have a single item that is more than $10,000? What would your reaction be if your house was burglarized and you found out that your home policy is only going to reimburse you $10,000 for your jewelry and that’s after you pay your deducible? I am guessing that you would not be pleased.

A good insurance agent will create a customized solution for each client. In my case, I move the valuable items to their own policy and reduce the unscheduled amount of personal property on the home policy to accurately reflect the true value of those items. This reduces the premium on the home policy which pays for the collections policy.

There are several other benefits to having all the valuable items on their own policy. For instance, there are additional coverages available, such as mysterious disappearance for jewelry. When you schedule jewelry, the items are covered for every type of loss: falling off at the beach, being flushed down the toilet, a stone falling out of a ring, and, of course, burglary and robbery.  For art, there is earthquake coverage even if you don’t have an earthquake policy on the home, plus there is coverage for restoration, replacement and diminution.

All items on a collections policy have worldwide coverage, automatic coverage for newly acquired items and an   appreciation rate of 150%. For example, if you lose a piece of jewelry that is scheduled for $40,000, and the adjuster determines that it will cost $60,000 to replace, the insurance company will pay $60,000.

Best of all, there is no deductible on a collections policy.

Misconception #2 –Creating a list of valuable items and gathering your receipts and appraisals will be  a hassle.

Unlike “main street” carriers, the insurance companies that insure million dollar homes have much higher appraisal limit requirements for jewelry and art. While they prefer to have appraisals and/or receipts for everything, they only require it when a single jewelry item is valued at $50,000 or more and an art piece is valued at $250,000 or more.

I have found that collectors generally keep accurate records about their collection. They know when, where, from whom and how much they paid for each item. Every jewelry purchase comes with an appraisal that lists all the details about the piece including whether or not it contains gems. Similarly, art purchased through a dealer or gallery comes with an appraisal. There are software applications that allow wine collectors to scan the bar code of each bottle with their smartphone as they enter and remove wine from their collection. That data is kept in the cloud, maintaining an accurate valuation of their collection at all times. The bottom line is that most people who collect valuable items have the information about their collection readily available.

However, there are situations where you may have no records, such as inheritance, or where the records are extremely old. I offer two solutions: first, you can have blanket coverage for your valuables. Blanket coverage is where the total collection is insured but no specifics are given. There is generally a per item sublimit, but there are several options for that. An example would be $50,000 of jewelry coverage with a $10,000 per item limit. Blanket coverage is a good way to insure several small items. It can also be a good way to start a collections policy, shifting some unscheduled personal property to a collections policy while you find or get current appraisals.

The second solution I offer to my clients is my resources. I have resources that can value most anything, and I can make referrals to those appraisers. I also know of companies that will offer a valuation for the unscheduled personal property. Having an accurate current inventory helps settle claims faster and minimizes settlement problems in the event of a loss.  Having accurate unscheduled and scheduled categories means the client is only paying for insurance on what they actually own.

Misconception #3 – Insuring valuables costs too much.

It is true that there is a cost to add a collections policy to an insurance package, just as there is a cost to add any type of coverage. The key is to find out what valuables a client has and then customize their policy so they get the most coverage for the least cost. For example, jewelry is the most expensive valuable item category to insure. But, rather than assume that a client keeps their entire collection on their bedroom dresser, I ask my clients if they keep any of their jewelry in a home safe or safe deposit box. Many people keep some heirloom pieces – pieces that they inherited and don’t wear but have sentimental feelings for– at the bank. The premium rates for items kept in a safe deposit box are only a fraction of regular rates. Having a home safe also offers a credit. I encourage my clients to provide a list of their items because the rates for scheduled items are usually 25% less than those for blanket items.

Another way to lower costs, which I mentioned earlier, is to lower the amount of unscheduled personal property on the home policy and redeploy that money to a collections policy. Adding a collections policy typically gives the client a discount on their home policy. We use the savings on the home policy to pay for some or all of the collections policy.

Lastly, all the insurance companies have lowered their collections rates in the last year or two and they now rate based on the total collection size and the number of pieces in the collection. For example, a $100,000 jewelry collection that is made up of just one item will cost more to insure than a $100,000 jewelry collection that is made up of ten items. There is less risk when there are many items in a collection and the carriers are now pricing their policies more accurately.

In summary, building a collection takes time, money, dedication, and attention to detail. Whether it is fine art, jewelry, wine, antiques or any sort of rarity, your insurance policy should be a customized solution around the items you value most and should be tailored to fit your lifestyle. By minimizing the frequency and severity of possible losses, you will have the peace of mind knowing you can buy that wonderful art piece while on vacation without worrying about breakage or theft during transport home.

Happy collecting!