Insurance question

[raulus]

I started off using my homeowner's policy, with a rider for my collection.

However, as my collection grew in value, my homeowner's insurance company got to the point where they didn't want to raise the insured value any further. The cost for the rider was about 1% of the insured value.

About a year ago, I shopped around a little and made a switch to collectibles insurance services. Part of making the switch was I needed to turn on my monitored home security system. Previously the system was installed but not turned on. Without the system, they capped the amount that they would insure for theft at about 5% of the value of my collection, which was obviously worthless. So I turned on the system and paid for monitoring.

The total cost to me is about 0.25% of the insured value, which is obviously a big savings over what I was paying through my homeowner's insurance.

If you've ever watched antiques roadshow, you know that there are typically 3 values that they assign to an item, in ascending order:

1) Auction value (often conservative auction value)
2) Retail value
3) Insurance value

For example, they might value an item at $20k at auction, $30k at retail, and $40k for insurance purposes. These are obviously rough numbers, but aren't far off from the approach they often take.

So usually I will look at each item in my collection, and determine how much it would cost if I had to go out and buy it at retail, either at a card shop or using a BIN on eBay (or some similar platform). And then I'll add maybe another 25%. I think part of the magic in adding a bit of a buffer is that if the price rises a bit, then you don't have to rush out and update your policy every 2 weeks. It also gives you the flexibility that maybe some items might end up being even more expensive than you anticipated, but maybe others aren't quite so bad, so you're covered in the aggregate.

In some cases, if an item is lost, particularly for rare and impossible to find items, actually finding a replacement might be a fool's errand, so often I'll have to just estimate. Usually when I do this, I'll guess high, because if my collection gets burned up or stolen and the insurance company isn't able to replace it, then I'm going to want a pretty big check to help dry my tears.

Additionally, the whole point of having insurance is to cover you financially for stuff that you really can't replace just going out of pocket. So for my pieces that are relatively cheap and easy to replace, I don't bother worrying about those. I set a price threshold, and add up everything above that threshold. And then that's the total amount I insure. Everything below the threshold, I figure I can self insure.

The other element is the wife test. I think I underestimated just how exciting this was going to be for me. Going out for insurance means that there's going to be a number attached to your collection. If you're like me, then you've probably been a little bit coy about the precise number attached to your collection, and just focus on mumbling something incoherent, talking about how values go up and down, and explaining that some things are hard to value when she interrogates you about it.

But for this exercise, you have to actually pick a number. And if you're shooting on the high side for value, particularly in today's market, then it's probably going to be a lot bigger number than she was expecting. Part of the magic will be helping her to understand that insurance values are a lot higher than what you paid to acquire your collection. Another part is helping her to realize that you couldn't actually sell it for that amount, particularly once you actually paid for selling costs and capital gains taxes. Of course, once she knows how much you've insured it for, she might just decide to just burn it down herself to collect the insurance value.

Good luck, and hopefully paying for insurance doesn't put too big of a dent into your ability to continue to grow your collection.