Tips On Protecting Your Investment
Reasons for appraisal:
Appraisals are based on two values:
1) Retail Replacement Value is the highest retail value in the current market to replace an item.
2) Market Value (MV) = What an item is sold for is true market value.
This value is to be used to determine: resale potential, charitable donations and IRS deductions, equitable distribution associated with dividing an estate or as a result of a separation or divorce.
MV is what a willing buyer and a willing seller agree to, not under duress, at arms length with all known facts available to both parties.
Did you know that when donating an item to a charity, the charity has the option to sell your donation for its operating fund? This can be sold in an auction event or in the market place. If sold within two years of your donation, what the item sold for by the charity not what you originally wrote off your taxes when you donated the item, is the true MV. You will be notified and an adjustment will be required to your taxes for that year. It could be higher or lower. The IRS requires a specific type of appraisal attached to your filing when taking a deduction over a $5,000.00. Not all appraisers are qualified to produce IRS acceptable appraisals. If not properly executed, they will reject your deduction. Check with your accountant as it relates to you.
The market is extremely volatile. What was in vogue 10 years ago may not be the same today. On the other hand, items in your collection may have greatly increased in value. So the correct balance is called for here. Not to pay for more insurance than you need and to be sure you are not under insured. Therefore it is important to update values every five years. Are you setting out to invest in a particular item? An appraiser can determine the MV so you do not over pay and get caught up in the updraft of making the deal.
Specialized Fine Art Insurance Requirements
For your jewelry, collectibles, artwork and antiques, most homeowner polices do not include these items for replacement value unless you have a rider or floater to specifically cover it which are offered as a supplement to the policy. In order to properly insure these, most insurance policies require an appraisal.
Three Types of Coverage - Title, Property & Specialized
1) Title policy is used primarily when the art has passed through more than one owner.
2) Property policy is generally home or renters insurance. A homeowner’s policy is normally not as sophisticated as a specific fine art insurance policy. Specific policies have a lot more restrictions and a lot more underwriting. As the art market has gotten so much more sophisticated, a homeowner’s policy is not the ideal place to put your coverage. These policies may cover up to the policy limit per item minus a deductible and might require a separate add-on floater to specifically cover it and are offered to supplement a policy which item must be appraised for coverage.
Property Policy Limitations:
Pay claims are at actual cash depreciated value
Typical coverage limits are on average $500-$2,000
Non comprehensive and does not insure against accidental breakage
3) Specialized Policy
Art Insurance specialists are more experienced in creating policies to protect your art collection and knowing how to help in claim situations. When you make a claim with an art insurance specialist, your collection is going to be taken very seriously. With a common homeowner’s insurance policy, your art collection is nothing more than a part of your valuables. A specialty art insurance company focuses on the art. They understand how the claims situation is handled, how the appraisals work, and they understand the movement of an art piece.
Some steps involved to acquire specialized Fine Art Insurance
Proof of ownership
Bill of sale
Provenance - Proof of ownership
Appraisal Frequency - Updating Valuations
Scheduling concurrent appraisals based on requirements from the underwriter of your policy often takes place anywhere between every 1-5 years.