What Is It?
If you invest in hard assets such as antiques, collectibles, gems, and precious metals, you should protect them against loss and damage due to theft, fire, or other events. Their value as investments depends to a great extent upon their condition, and keeping them safe is vital. The best way to protect your investment is to purchase property insurance that will pay you a certain amount of money in the event your hard assets are damaged, destroyed, lost, or stolen.
Tip: Insurance policies won't cover losses due to market downturns. For instance, if you purchase a piece of artwork, and 10 years later it's worth less than you paid for it, insurance will not cover this loss in value.
Review Your Insurance Coverage and Policy Limits
Hard assets you keep in your home are generally covered under your homeowners or renters insurance policies. However, homeowners policies often set specific dollar limits for certain categories of personal property. In some categories, limits are set only for theft, not for damage or destruction. This is because items such as jewelry and coins are often targeted by thieves, but are less frequently damaged or destroyed. Some standard limits that apply to hard assets are:
- $200 for money, bank notes, bullion, gold, silver, coins, and metals
- $1,000 for the theft of jewelry, furs, watches, and precious and semiprecious stones
- $1,000 for manuscripts, stamp collections, and valuable papers
- $2,000 for the theft of firearms
- $2,500 for the theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewterware
In addition, homeowners policies generally offer actual cash value coverage rather than optional replacement coverage. This means that if the hard asset is destroyed, you'll usually get less than what it would cost to replace it since depreciation counts.
And if you invest in antiques, beware. Although it is possible to purchase replacement cost coverage for most items, many homeowners policies specifically exclude replacement cost coverage for antiques (which may be defined as an item more than 25 years old).
If you think that your homeowners or renters policy inadequately covers your hard assets, there are two ways you can increase your insurance coverage. You can either add an endorsement onto your homeowners insurance policy or purchase a stand-alone insurance policy designed specifically to protect valuable collections of hard assets.
If you think that the value of your hard assets will exceed your coverage limits, you can add an endorsement to your homeowners policy that will provide you with additional coverage. (Of course, adding an endorsement will increase the insurance premium you pay.) If you have a lot of articles in one category that you want to insure (e.g., works of art) you can add a blanket coverage rider that will cover each piece in your collection up to a certain amount (limits usually range from $500 to $5,000).
However, if you have one very valuable item in your collection whose value would exceed a blanket rider's coverage limit, you may want to insure it separately by purchasing a personal articles floater, which can be added as an endorsement or written as a separate policy. You will have to describe the property and may have to have it appraised. For more information on this topic, see Homeowners Insurance.
The Stand-Alone Personal Articles Policy
Sometimes it makes sense to purchase a stand-alone personal articles policy that is specifically designed to address the needs of people who collect or invest in valuable items. Such a policy may offer broader coverage than a typical homeowners policy. For instance, a homeowners policy might specifically exclude losses from flooding, but a personal articles policy for valuable items usually covers all losses. This type of policy also generally pays you the agreed-upon value of a listed item in the event of a loss; there are no surprises if you have to make a claim. It may also offer other coverage as well, such as breakage coverage, automatic coverage for new items acquired, and automatic coverage increases that provide inflation protection.
Have Your Hard Assets Appraised
As an investor, you hope that your hard assets appreciate in value. However, that makes them difficult to properly insure because as their value increases, your insurance coverage may need to increase as well.
But how do you know what your hard assets are worth? One good way to get information about their value is to hire an objective, reputable appraiser, especially if you own very valuable items or if you own any hard assets that are difficult to value (e.g., antiques, fine arts). In some cases, your insurance company may require that you appraise any items worth more than a certain limit (this limit varies from insurer to insurer).
The appraiser will usually photograph the item, but if he or she doesn't, take a photo of the item or videotape it yourself. Keep the appraisal and other records related to the item in a safe place apart from it (e.g., in a safe-deposit box) in case the item is ever lost, stolen, or damaged. Otherwise, it will be hard to convince your insurer that the item is worth as much as you say it is.
Review Your Insurance Coverage Periodically
Make sure that you periodically review your insurance coverage to ensure that you have the right amount of coverage for your valuable items. The market value of antiques, collectibles, and other hard assets may rise or fall dramatically, affecting the amount of insurance coverage you need. Although it's better to have too much insurance than too little, insurance can be costly, so don't pay for what you don't need. In addition, remember to notify your insurance company if you buy or sell an item so that your insurance coverage can be adjusted accordingly.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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