How do you insure a high-value collectible?

You insure a high-value collectible by taking it out of the general contents cover of a home policy and listing it by name, either on a schedule attached to that policy or on a standalone collectibles or fine art policy, at a value agreed with the insurer and supported by a current appraisal. The rest of the work is reading the wording: which causes of loss are covered, where the item is covered, and what happens if the sum insured turns out to be too low.

Policy wordings differ from one country to the next, and from one insurer to the next. The sources quoted here are regulators and official bodies in the United States and the United Kingdom, each named where it is used. Every worked figure is illustrative, in US dollars, and this is general information, not insurance, legal or tax advice. Where no source is cited, the point is written as a thing to check in your own policy.

Why does a standard home policy fall short for a collectible?

A standard home policy falls short for a collectible for three reasons: it caps what it pays for certain categories of valuables, it may cover contents only against a list of named causes of loss, and it may pay on a basis that ignores what makes a collectible valuable. Each of the three can be read in the policy before any loss happens.

The cap comes first. The New York State Department of Financial Services publishes the special limits a company will typically pay under a homeowners policy: $200 for money, bullion, gold and silver; $1,500 for loss by theft of jewelry, watches, furs and precious and semi-precious stones; $2,500 for loss by theft of silverware, goldware and pewterware. These limits apply to the whole category, not to each piece, and the same regulator advises insuring a coin, stamp or sports card collection, or valuable antiques, separately. Your own policy may carry different amounts, so find its limits table first.

Apply it to one object. A wristwatch worth $40,000 is stolen from a home whose policy carries a $1,500 theft limit for jewelry and watches. The policy pays $1,500, less any deductible, and $38,500 of the loss, 96.25% of the value, stays with the owner.

The second reason is the list of causes. The National Association of Insurance Commissioners, in its consumer guide to home insurance, explains that some policy forms insure property against all perils except those specifically excluded, while others insure only against the perils they list. Under a listed-perils form, a vase knocked off a shelf has to match one of the listed causes, or it is not a claim. The Texas Department of Insurance tells collectors that extra coverage may pay for damage or losses that standard policies do not, and gives breakage and flood damage as examples.

The third reason is the basis of payment. The Texas regulator warns that a standard policy generally pays to replace an item with something similar, so that a rare card worth $2,000 might be paid as an ordinary card worth $1, and that some policies exclude collectibles altogether. Its example of a category cap: with a $500 limit on coins, the most a policy would pay for a $5,000 coin is $500, and the deductible still applies.

Should you schedule the item on your home policy or buy a standalone policy?

Schedule the item on your home policy when you own a handful of valuable pieces and the insurer is willing to list them; buy a standalone collectibles or fine art policy when the collection is large, moves often, or needs cover the home insurer does not write. Both routes do the same basic thing: they name the object and give it its own sum insured, outside the category limits.

The National Association of Insurance Commissioners describes the first route as a scheduled personal property endorsement, also called a personal articles floater, for items such as jewelry, furs, stamps, coins, guns and antiques whose value may exceed the normal limits of the policy. It notes that sometimes cover can be added by endorsement and other times a separate policy has to be bought. The Texas Department of Insurance gives the practical order: ask your current insurer first, and if it does not sell collectibles coverage, look for a company that specialises in it. It adds that the deductibles on this extra coverage are usually lower than those on the home and its contents.

The cells marked "check" are questions to put to the insurer or broker, not promises that every policy keeps.

On the fifth row, the New York regulator's example shows personal property away from the premises covered at 10% of the dwelling limit, against 50% at home. On the last row, ask whether a claim on a schedule affects the renewal of the home policy.

What is the difference between agreed value, market value and replacement cost?

Agreed value pays the figure written in the policy, market value pays what the item would have fetched at the date of loss, replacement cost pays what it takes to buy an equivalent, and actual cash value pays replacement cost less a deduction for age and wear. For a unique or scarce object, agreed value is the basis that removes the argument about price after the loss.

The Marine Insurance Act 1906 of the United Kingdom defines a valued policy as one that specifies the agreed value of the subject-matter insured, and provides that, in the absence of fraud, the value fixed by the policy is conclusive between insurer and insured. That statute governs marine insurance, not a household schedule, but it shows the purpose: the valuation is settled when the policy is written, not when the claim is made. A list of items with amounts beside them is not necessarily an agreed value clause. Look for the sentence that says what the insurer pays on a total loss: the scheduled amount, or the lower of the scheduled amount and some other measure.

The worked example takes one painting scheduled at $80,000 and two possible markets on the day it is destroyed.

No basis pays more than the amount on the schedule, so when the market rises the shortfall is yours under either wording, and the only remedy is to revise the figure. When the market falls, agreed value is the one basis that still pays the scheduled amount, which is why an insurer asks for evidence before accepting it.

Replacement cost suits objects that can be bought again, such as a current-production watch or a recent vintage of wine. Check which market the replacement is priced in, retail or auction, so that the appraisal and the policy use the same definition. Actual cash value, which the National Association of Insurance Commissioners describes for a home as its value considering age and wear and tear, is the basis to avoid: on an illustrative object costing $12,000 to replace, a 35% deduction for age leaves $7,800, and for a collectible age is rarely a defect.

What appraisal does an insurer need, and how often should you update it?

An insurer will ask for a written appraisal, or for a recent purchase the invoice, that identifies the object beyond doubt and states its value on the same basis the policy uses; you should update it on a regular cycle and after any sharp move in the category. The Texas Department of Insurance tells collectors to use receipts or a professional appraisal to decide how much coverage to buy, and to get regular appraisals so that they know whether values have changed and can adjust their limits.

No regulator read for this article sets an interval in years, and insurers set their own requirements. Ask above what value the insurer requires an appraisal instead of a receipt, and how old that appraisal may be at inception and at renewal. Then set your own cycle by the volatility of the category.

A report that serves an insurance file has these features:

• It names the purpose as insurance and states the type of value used, with the market it refers to.
• It describes the object so that it cannot be confused with another: maker, model or title, date, dimensions, materials, serial or edition numbers, marks, condition.
• It includes photographs taken at the inspection.
• It is signed and dated by an appraiser who has no interest in buying or selling the piece, and it sets out the appraiser's qualifications.

Which exclusions should you check in the wording?

The exclusions to look for in a collectibles or valuables wording are gradual deterioration, loss caused by the nature of the object itself, loss with no identifiable cause, damage during restoration, and theft from an unattended vehicle. None is certain to be in your policy, and an endorsement may remove one, so read the exclusions section with a list in hand.

The Marine Insurance Act 1906 provides that, unless the policy says otherwise, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, or inherent vice or nature of the subject-matter insured. Inherent vice means damage that comes from within the object: paper that turns acidic, a pigment that fades, a cork that fails. The National Association of Insurance Commissioners says the same of home policies in plainer terms: the policy does not pay to repair items that simply wear out.

Take this list to the wording:

• Wear, gradual deterioration and inherent vice. Check how the policy treats light, humidity, temperature change, rust, mould, insects and vermin, and whether sudden damage from a failed climate system is treated differently from slow damage.
• Mysterious disappearance. Some wordings exclude a loss that cannot be explained, or one discovered only at stocktaking. Check whether an item found missing, with no sign of theft, is covered.
• Unattended vehicles. Check whether theft from a vehicle is covered at all, and on what terms: locked, out of sight, a time limit, a lower sum.
• Restoration, repair and cleaning. Check whether damage caused while the item is being worked on is covered, by your policy or only by the restorer's.
• Flood and earthquake. The National Association of Insurance Commissioners lists them as perils commonly excluded from home policies; confirm whether the schedule or standalone policy brings them back.
• Confiscation, defective title and authenticity. A property policy insures physical loss or damage. Whether it responds when an item is seized or proves not to be genuine is a separate question to put to the insurer in writing.

Conditions deserve the same attention, because a condition that is not met can defeat a claim for a cause that is covered. Look for a safe of a stated grade, an alarm that must be set when the home is empty, a limit on how long the home may be unoccupied, and jewelry or watches covered away from home only while worn or locked away. Look also for the changes you must report during the year: a move, a loan, a consignment, a restoration, or business use.

Is a collectible covered in transit, at a dealer or on loan to an exhibition?

A collectible is covered away from home only if the policy says so for that place and that activity; transit, a stay at a dealer's or auction house's premises, and a loan to an exhibition are three separate situations, and each needs a line in the wording or in the other party's insurance. The safest habit is to tell the insurer before the object moves.

In transit. Check the territorial limits, whether cover applies door to door, and what the insurer requires: professional packing, a specialist shipper, a signature on delivery, a cap on value per consignment. Read the carrier's terms as well: its own liability may be limited to an amount unrelated to the value of the piece.

At a dealer, an auction house or on consignment. Two policies may apply, yours and the consignee's, and the agreement should say which one responds, for what value, from collection to sale or return. Ask your insurer whether your cover continues once the item is offered for sale. Ask the consignee for written evidence of its cover and of the value at which your piece is insured there.

On loan to an exhibition. The cover to ask a borrower for runs from the moment the piece leaves your wall until it is back on it, known as nail-to-nail cover, at an insured value stated in the loan agreement. In the United Kingdom, Arts Council England describes the Government Indemnity Scheme as a form of insurance guaranteed by the government, available to borrowing museums, galleries and libraries as an alternative to commercial insurance, with nail-to-nail cover and loans from private individuals included. The borrower has to pass a security risk assessment of the transport, venue and exhibition areas. As a lender, obtain the indemnity or certificate of insurance before release and tell your own insurer about the loan.

What happens if the collection is insured for too little?

If a collection is insured for less than its value, a total loss pays only the sum insured, and where the policy contains an average clause every partial loss is reduced in the same proportion. The Financial Ombudsman Service in the United Kingdom describes the clause this way: you have to pay a proportion of any loss or damage if you have insured something for less than its replacement value. Its own example is a home that costs £400,000 to rebuild and is insured for £200,000: the owner is 50% underinsured, and some insurers would pay only 50% of a claim.

The arithmetic is one line: the claim paid equals the loss multiplied by the sum insured and divided by the value at risk. In this worked example, a collection was appraised at $150,000 and insured for that amount on a blanket basis. Since then the owner has added pieces worth $40,000 without telling the insurer, and the original pieces have risen by $60,000, or 40%. The collection is now worth $250,000, the sum insured is 60% of that, and water damage to several pieces causes a loss of $40,000.

Under an average clause the insurer pays 60% of $40,000, which is $24,000, and the owner bears $16,000. With a $1,000 deductible taken afterwards the payment is $23,000, against the $39,000 that full cover would have paid; the wording sets whether the deductible comes before or after the reduction. In a total loss the same policy would pay $150,000 and leave $100,000 uncovered. The chart shows the same $40,000 loss at four levels of cover.

Not every policy works this way. An item scheduled individually at an agreed value has its own figure, so the places to look for an average clause are a blanket sum covering a class of objects and the general contents sum around the schedule. The National Association of Insurance Commissioners describes a related rule for the building itself: if cover drops below 80% of the full replacement cost of the home, the insurance company may reduce the amount it pays on a claim.

The Financial Ombudsman Service also sets out what it expects in the United Kingdom. The insurer must ask clear questions to obtain accurate values, and the service will usually say it is not fair to apply the average clause if the insurer did not ask for the full replacement cost or if the policy contains no such clause. The consumer is responsible for giving a reasonable answer; where an estimate is unreasonable, the insurer could decline the claim, pay less or cancel the policy. Keep a copy of the answers you gave and of the appraisal behind them.

What does a policy pay when an item is damaged but not destroyed?

When an item is damaged but can be restored, a policy pays the cost of restoration, and may or may not pay the loss in value that remains afterwards; that second element can be the larger one for a collectible and has to be found in the wording.

Return to the painting scheduled at $80,000. A tear is repaired for $6,000, and after restoration the appraiser puts the loss in value at 25% of the agreed figure, or $20,000. A wording that covers restoration and resulting depreciation pays $26,000; one that covers restoration only pays $6,000. Check whether depreciation after repair is covered, who chooses the restorer, and how a disagreement about the amount is settled. The National Association of Insurance Commissioners advises policyholders to check the policy for an appraisal clause.

Pairs and sets raise a similar question. Suppose a pair of vases is worth $30,000 together and $9,000 each when sold singly, and one is destroyed. The loss to the owner is $21,000, the difference between the pair and the survivor. A wording that pays a proportionate share of the set pays half, $15,000, which is $6,000 less.

How do you document a collection for insurance?

Document a collection with an inventory that lists every piece with photographs, identifying details, purchase documents and its current value, stored away from the collection itself and reviewed every year. The National Association of Insurance Commissioners recommends an inventory for any household: write down and photograph or film everything, include valuable items such as antiques, jewelry and collectibles, store the inventory in a secure place at another location, review it annually, and keep receipts as proof if you file a claim.

For a collection, each entry holds more than a household list would:

• A description precise enough to identify the piece: maker, title or model, date, dimensions, materials, serial, edition or certificate numbers.
• Photographs of the front, back, signature or marks, and any existing damage, with a scale.
• The purchase invoice, proof of payment and the seller's details.
• Certificates, grading reports, earlier appraisals and condition reports.
• The current insured value, the date of the last appraisal and the present location.

Add a condition report whenever a piece leaves the house and again when it returns. Without a record of its state before the journey, it is hard to show that damage happened in transit and was not already there.

How do you make a claim on a collectible?

Make a claim by reporting the loss to the insurer at once, preventing further damage, keeping everything for inspection and proving three things with documents: that you owned the item, what it was worth, and what happened to it. The National Association of Insurance Commissioners advises policyholders to contact their agent or company as soon as possible and notes that they are required to protect the property from further damage.

Keep a log as you go: the National Association of Insurance Commissioners recommends noting the dates of every conversation with the agent or adjuster. If a dispute remains after the insurer's own complaints process, your country's complaints body or insurance regulator is the next stop.