Insurance is one of those subjects that you’d rather not think about. It takes time, money and effort to obtain valuations on antiques, and anyway, they’re probably not worth all that much, and they’ll be covered on the home contents policy – right? Compiled by Angela Bateman
Well, not necessarily. Research in the UK reveals that forty percent of the population has inherited valuables, and one in five has inherited goods with a value of more than $25,000. But only one-third will bother to have their heirlooms valued, and barely one in ten has adequate insurance for jewellery, antiques or art. We can only assume that it’s a similar story in Australia.
Clearly it’s important to get a proper insurance valuation for antiques and works of art, but for some reason people tend to value items that they have bought themselves as having more value than those that were inherited – and often mistakenly. ‘Often people put these items away,’ says a prominent loss adjustor, ‘and they are largely forgotten until the owner needs to make a claim.’ If there’s not a proper insurance valuation, the money awarded by the insurance company may do little to replace Great-Aunt Martha’s Clarice Cliff vase that you thought was just a gaudy-looking bit of tat.
And then there’s the case of a changing market. The value of antiques and art can fluctuate, and a valuation every decade or so is not a stupid idea. Certainly the English family that insured their Jacobean silver for $750,000 in the 1980s must have wished that they’d organised regular updates; when the collection was stolen in the early 2000s the insurance company paid out on the insured amount, although by then the silver had a value of $5m.
So what do you need when you’re organising a valuation? The most important thing is a professional assessment. If you have antique jewellery, take it to a valuer of antique jewellery. A description of a three-stone diamond ring set in gold means little; it could be worth $1000 or $25,000. A valuation needs to itemise the clarity, cut and carats of each stone, and this can only be performed by a professional assessor of antique jewellery. The same applies to any antique. If the description you have of a Victorian sideboard says simply that it’s mahogany with two drawers and two cupboards, it could be worth anything from $1500 to $15,000; quality, provenance and condition are all major considerations. In any case, most insurance companies will insist on a professional written valuation for items with a value over a certain amount.
In general terms, the insurance valuation will probably be at least 20% higher than you could expect to get for your item if you decided to sell it. This might push the premium up, in which case you can request ‘market valuations’, which are taken from auction prices. However, this method does run the risk of resulting in a payout that is too low for a satisfactory replacement of the item.
Why do people undervalue their antiques? Mainly because they want to keep their insurance premiums to a minimum. But in the insurance world all items are not equal, and a dresser valued at $20,000 will usually have a much lower premium than a ring of the same value, purely because it’s much harder to walk off with a dresser than with a ring.
Under-insurers are also hoping that they will never be robbed, have a fire or be flooded. And if they are, after the devastation of losing their heirlooms comes the reality that they can’t afford to replace everything. There’s also the school of thought in which the owner deliberately under-insures, and if the worst does happen they believe they will make up the difference themselves. The logic here is that the money saved in higher premiums will be available should a disaster occur. The problem is that if you insure your home contents for $50,000, for example, when you know they are worth $100,000, you may well find that the insurers – who will also be aware that you’ve under-insured by 50% - will only pay out half of your claim. So you’ll end up with $25,000 for contents worth $100,000. Some insurers even include a clause in which they have the right to reject a claim completely, in the event that the policyholder has deliberately or substantially under-insured their goods.
It’s also worth checking your policy for limitations on the loss you can claim. Most homeowner policies contain a limit to the amount that is claimable as a whole and by merchandise category. And there may be restrictions on the source of any damage. For example, you might be covered if your house burns to the ground, but if there’s a flood in your basement you may not be entitled to anything.
Documents you need
What documents do you need for your antiques? You should keep any receipts of items bought (if it’s too late for the receipt, make a note of when you bought the item, from whom and how much you paid for it), and store them with a photograph of the goods and a detailed description that includes measurements, materials of manufacture and any repairs or improvements you might make. You should also keep any part of an item that is replaced, because the insurance company may demand proof that your restored antique is the same item as the one listed on the original purchase.
What does ‘contents’ cover? When you purchase Home and Contents insurance cover, the term ‘Contents’ includes all household goods, personal effects, cash, coins and negotiables (the latter being treasury notes, savings certificates, stamps, money orders, gift certificates etc.), and articles of special value, listed on the Policy Schedule under ‘contents specified items’. A maximum limit often applies to Contents items (in some cases as low as $1000), so you may need to list some items separately on the Policy Schedule, and with some companies there is also a limit on payouts for cash and negotiables.
What happens when you are involved in a loss settlement? We all know that insurance policies can be complicated and boring – but it really is worth paying attention to the settlement agreement. A typical policy will state that: ‘The insurer is obligated for no more than the least of four measures of loss’. The four measures are the actual cash value (usually based on a replacement cost basis); the cost of restoring damaged property; the scheduled value of the item (based on purchase price or current appraisal); and replacement with property of similar kind and quality.
The most used option – because it’s usually the least expensive – is replacement cost. Because the insurer is usually able to purchase at wholesale, the replacement cost is less than retail. So if you request a cash payout, the insurer will provide you with their replacement cost – which doesn’t cover the retail cost. Now this might not apply to antiques – few insurers would have a wholesale arrangement with antique dealers – but it does mean that if you have a three-stone diamond ring stolen worth $4500, you may not receive $4500 cash to go and buy another one if you request a cash payout. In fact, unless your ring was itemised separately, you may receive less than a quarter of its value; because most home contents insurance covers jewellery to a limited amount – typically $2000 – and of that total, only half of the amount can cover one piece, you would be entitled to just $1000 for your $4500 ring.
Questions you should ask
Under the Financial Services Reform Act, there is a 14-day cooling off period in which you can review your policy and decide if it meets your needs. Questions you need to ask include: What does the policy cover and what is excluded? Does it cover accidental damage? Is the risk of under-insurance minimised? What goods need to be specified in the policy, and do I have more valuable items that require a separate policy?