There’s more to investing than stocks and bonds, and the options – whether fine art or stamps and coins, family heirlooms or procured – are probably more likely to spark the collector’s passion. But such investments also involve a different set of risks than market vagaries alone.
Understanding and mitigating those risks can prevent a world of heartache. Your protection starts with five steps:
- Put a solid management approach in place. A team of experts will help you understand the value of your collection and potential loss exposures and guide you on best safeguards. The team includes your insurance broker and carrier (preferably a specialist in your type of collection) and possibly an art conservation laboratory. Also helpful is a system to manage details of your collection, from objects and purchase dates to values and appraisal records.
- Take care in displaying and storing items. Paintings hung close to the floor will be vulnerable to flood waters and damage from children and pets. Never display art above an active fireplace. Don’t place valuable rugs, paintings or antiques in areas with the potential for leakage, flooding or excessive sunlight. Fine wine should be stored in a temperature-controlled wine cellar (with no risk of flood damage).
- Focus on safety when shipping and loaning. Use professional and reputable art shippers. For air shipments, consider the Transportation Safety Administration’s (TSA) Certified Cargo Screening program. It allows certified art shippers to inspect and seal packages and reduces the risk of airport security damaging your items. Before making museum loans, your insurance broker should examine the museum’s insurance policy to ensure appropriate coverage of your collection.
- Properly insure your items. It’s key to keep your policies up to date when new pieces are added. You don’t want to overinsure against minor risks and underinsure against major ones. Your insurance broker can advise you on what collectors often overlook, like:
- Valued Items Rider. This goes beyond the standard, minimal homeowners’ policy coverage for items like jewelry, furs and wine, etc., covering items worldwide, including during transit and shipping. The best policies will pay market value up to 50% higher than the scheduled amount of coverage on losses.
- Floods and Earthquakes. Since your basic policy usually excludes water backups, you need an All Risk policy that includes unlimited backup of sewers, drains and sump pumps.
- Mold. This is a sure risk if your home floods, but standard homeowners' policies have limited protection against it. Extra coverage can be purchased for an additional premium.
- Liability. Liability insurance protects your assets if you become the target of a lawsuit. Individuals who want to go beyond the payouts on their home and auto policies should buy an umbrella policy with a personal excess liability limit equal to their net worth.
- Expect the unexpected. Make sure your homes have functional fire and smoke detection systems. Good investments: A waterless fire protection system, and perimeter and external security systems. A plan for emergency moves (e.g., during hurricane system) of your collections is also smart.
Unique and valuable collections require a special kind of safety net. With the right team helping you set up yours, your passion won’t become an aggravation.