Too many clients fail to insure their collections, often because they don't want to create records of their valuables' worth; sometimes because they just don't get around to it.
But that's a mistake. So "it's up to the estate planner, attorney or accountant to make sure clients' collections are insured and appraised," says Christiane Fischer, chief executive officer of AXA Art Insurance Corporation.
While neither art nor insurance may be at the top of an estate planner's to-do list, it's wise to make sure that clients have insured their Babe Ruth autographed baseball, wine collection or Georgia O'Keefe paintings of awe-inspiring value.
Check that their collectibles are fully covered for crimes, fire, flood, breakage and natural catastrophes, including hurricanes, earthquakes, tornados and wind damage. You also want to make certain they're covered if they happen to travel anywhere. That way if anything happens to these precious items, you're a hero.
When there are just a few antiques and other collectibles worth a measly few thousand dollars, they can be covered simply via a rider on a homeowner's insurance policy. A Civil War memorabilia collection worth $5,000, for example, may cost as little as $21 per year, according to State Farm Insurance Companies.
But a homeowner's policy may not be appropriate when a client needs to insure millions of dollars worth of fine art and collectibles. Specialized insurance may be best. A homeowner's policy has exclusions and deductibles, warns Janece White, assistant vice president of Chubb Group of Insurance Companies in Warren, N.J. When you have separate coverage, those issues aren't a concern.
"A specialty policy has broader coverage," adds Fischer. "We have different valuations [such as] aggregate, current value and loss limit values to underwrite a specific type of collection."
In addition to Chubb and AXA Art Insurance Co., insurers specializing in high-value art, antiques and collectibles include AIG and Lloyd's of London.
These companies issue "Inland Marine" coverage, which means they cover all types of losses -- excluding acts of war, nuclear attack or government confiscation. So when a client ships his Renoir back and forth between his home in New York and Palm Beach, Fla., he's covered. These companies have professional art appraisers and experts on staff to offer advice on how to maintain, store, safeguard and ship collections.
If you get coverage through a specialist for an oil painting worth $2 million, expect to pay $1,200 to $2,000 per year.
If it's a mid-level collection, worth less than $200,000, clients can get coverage from a company such as The Hartford Group that sells its policy through the Collectibles Insurance Agency in Westminster, Md.
But be sure to advise clients that no matter when they insure valuable antiques and collectibles, they still need to appraise the items periodically. After all, market values change and insurance coverage should grow along with the value of the collectible.
White, of Chubb, recommends that even collectors of items such as wine, coins, stamps, memorabilia, and sports and toy collectibles get appraisals when the items are worth even $10,000 to $20,000.
Appraisals should come from qualified professional appraisers. The following appraisal organizations test and certify appraisers: The American Society of Appraisers (www.appraisers.org), The Appraisers Association of America (www.appraisersassoc.org) and the International Society of Appraisers (www.isa-appraisers.org).
Typically, you must provide an insurer with a schedule -- an inventory of the items to be insured. The items must be valued by an appraisal, a bill of sale or statement of replacement value, based on the current market price.
Hartford's Collectibles Insurance Agency has no inventory requirement or appraisal requirement. The insured gets $60,000 of coverage for crime, travel and shipping and mailing coverage. There is $100,000 of coverage for losses in a storage facility. It also offers coverage for displays at exhibitions. Coverage automatically increases 1 percent annually.
Not all policies are alike. So due diligence is critical.
AXA's minimum premium typically is $500, which covers about $500,000 of valuables. For smaller collections, AXA offers blanket coverage; however, the insured still needs to provide an inventory of items coverage
Chubb, on the other hand, takes a slightly different approach. It offers the same coverage as a stand-alone policy or as an endorsement on a homeowner's policy. It requires a bill of sale or appraisal for fine arts worth more than $100,000 and jewels worth at least $50,000. Below these amounts, the collector just needs to provide a list of the items and their current market value.
Chubb also offers a 150 percent valuation guarantee in the event of a loss. This means that if an appraisal is not up-to-date at the time of a loss, Chubb will pay 1.5 times the value of the item listed on the schedule.
Be sure to talk with your clients about their valuables when you review their net worth. That is a good segue into discussing the proper insurance coverage. Depending on the value of their fine art and collectibles, they have a lot of insurance options.
Alan Lavine's forthcoming book, coauthored with his wife, Gail Liberman, is Quick Steps To Financial Stability, Que/Penquin Group.
To subscribe, click here.