Passion Project: Insuring Your Collectibles

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You have purchased your dream watch and your coin collection spans the world. But what can you do to keep your collectibles safe?

What is the use of a stamp you will not lick, Bordeaux you will not drink, or coins you will not spend? For a serious collector, owning an “Inverted Jenny” stamp, a bottle of Château Lafite or a Flowing Hair dollar makes life a little sweeter and the future a little brighter. Whether you choose to buy collectibles as an investment or purely as a passion project, you will want to safeguard your collection through proper care and adequate insurance coverage as it grows in size and value.

Collective coverage

As opposed to amassing seashells or shot glasses from your latest vacation, valuable collectibles that make up a portion of your net worth are called “passion investments,” a relatively new asset class. A basic homeowners insurance policy typically does not provide enough coverage for these valuables, so you will need a separate policy to protect your collectibles.

Depending on the nature of your collection, it might be prudent to itemize or “schedule” each item on your policy. Another option to discuss with your insurance broker is blanket coverage, which includes all your collectibles with a per-item claim limit.

“Since collections are usually in flux as you acquire and sell items, you need to have a system for tracking and valuing collectibles to keep your coverage current,” says Mary Planek, a Northern Trust Wealth Advisor.

With collection management software or a detailed inventory including photos and appraisals, you can keep all documentation current; you will need it to support an insurance claim and to justify your asking price should you decide to sell.

As any longtime “Antiques Roadshow” viewer knows, market fluctuations affect the value of certain types of collectibles — sometimes wildly so. A certified appraiser should assess most valuable collectibles every three to five years for insurance purposes, and some call for more frequent appraisals to keep up with market trends.

Quality care

How you store, display and maintain your collectibles can affect your insurance rate. For example, keeping your loose diamond collection in a bank safe deposit box instead of a home safe can help reduce the overall risk of theft or damage. The lower the risk, the lower your premiums may be.

Proper storage and upkeep of your treasured possessions not only preserves them but may also be an insurance requirement. For example, rare wines, stamps, classic cars, artwork and antiques all have special storage necessities. While it is important to take care of your collectibles, overly handling or polishing items like coins may actually decrease their value. A collectible’s condition determines its value and many numismatists look for an item’s “tone,” or signs of natural aging.

“Depending on an item’s value, getting underwritten may be a process to make sure certain conditions are met,” says Frank Bond, a Northern Trust Wealth Advisor. “If an insurer sees that your $50 million Monet is hanging above the fireplace, they will point out that it is in harm’s way.”

Methodological curation

According to Bond, many collectors simply enjoy their collections and do not care all that much about appreciation. Others collect as an investment and expect a return — a calculated yet considerable risk that Bond describes as “informed speculation.”

If you want to maximize your collection’s value as a whole, either as an investment or a point of pride, take a curatorial approach. Simply buying what appeals to you is a legitimate guiding principle, but world-class collections generally have a theme or unifying characteristic. Instead of random brooches, collect pieces within the Art Nouveau movement. Instead of lithography, collect pieces by Works Progress Administration printmakers.

Collections by nature are idiosyncratic and highly specialized, so it is hard to predict whether a curated yet quirky collection — Mark Twain juvenilia or recovered Great Lakes shipwreck artifacts, for example — will find a buyer. Through no fault of the collector, specialized collections require specialized investors. “Many collections unfortunately are not marketable,” says Planek.

Future considerations

You may spend years collecting the most sought-after baseball cards only to have your beneficiaries unload them at a garage sale. Your themed art collection could be divvied up or your Birkin bag donated to Goodwill. Ultimately, what becomes of your collection is up to you, and preparing a detailed and documented plan for your collectibles can help ensure that your “Inverted Jenny” stamp will not be used to mail a letter.

“In wills, it is very common to reference a side document that lists personal property and whom you want those items to go to,” Planek says. “If you bequeath an item or a collection to an individual, there cannot be too many strings attached.” However, it is different if you make arrangements to leave it to an organization such as a museum, which can be legally bound to keep a collection intact.

As part of your wealth transfer and tax management planning, you can fund a trust to pay for your collection’s continued upkeep and perhaps qualify for a charitable tax deduction.

Whether you have a world-class collection or a single, high-value collectible, your passion items are a part of your financial portfolio and personal net worth. Seashells and shot glasses aside, if something is worth collecting, it is worth protecting.