• Home >
  • Blog >
  • Top Five Mistakes When Insuring and Protecting an Art Collection

Top Five Mistakes When Insuring and Protecting an Art Collection

Posted on: February 1st, 2021

Top Five Mistakes When Insuring and Protecting an Art Collection

Collecting art is an activity that’s been around since the days of the ancient Greeks and Egyptians. The motivations for collecting range from wanting to be a strong steward of the highest outputs of a culture to seeking the financial appreciation that a good collection can potentially generate.

Whatever the original intention, in the modern world it is best to think of art as a bona fide financial asset—and treat it accordingly. This mindset can lead you to a set of best practices aimed at properly managing this asset class.

Of course, art isn’t the same as a share of stock in a business. It’s unique in that the originality of the pieces often makes it impossible to replace destroyed or stolen objects. Unfortunately, we see that too many art collectors overlook some important steps for protecting their art assets.

Whether your goal is to build a world-class collection or to own a few valuable pieces from a favorite artist, you should be on the lookout for these mistakes.

Mistake #1: Not having the right type of insurance policy

Having both the right type and the right amount of coverage is the first step in protecting an art collection. Inexperienced collectors (and even some experienced ones) often believe that their homeowner’s insurance policy will cover losses to their collection.

Big mistake. In general, homeowner’s policies exclude fine art or limit the amount of coverage to a minimal amount that would not cover the loss. Also, your deductible will apply—so smaller claims may not make sense to pursue.

The smarter approach is to have a separate fine art policy that does due diligence on the collection in the underwriting process and establishes full replacement costs—with no deductible. The insurers that provide these policies understand the art markets, proper valuation and how to handle claims.

There are two types of documents needed at the beginning of this process:

  1. Proof of ownership. This can be as simple as a bill of sale or, often with older art, the provenance of the item—a record of ownership of the piece that is also used as a guide to authenticity or quality.
  2. An authentic appraisal. Most insurers want the appraisal to be no older than three to five years, depending on the type of art.

The underwriting process will unfold from there. The agent may request any other pertinent information the insurer needs, and then provide quotes.

Mistake #2: Not having proper record keeping

Like any financial asset, art requires good record keeping. There are two ways to do this: You can do it yourself if the collection is small, or you can hire a professional firm to do the record keeping.

Regardless of the approach, you’ll want to catalog the art in as much detail as possible. Such details usually include the date purchased and the amount spent, the date of the last appraisal, the location of the piece, and any damage and repairs made to it. A video or photo of a piece in its location can be particularly important. Further, you could list the name of your alarm and security company and its last inspection or system update.

The information you gather can be stored on a computer or in hard copy. The best recommendation is to do both so that you have redundancies—which can be particularly important after natural disasters, for example.

Collectors who occasionally loan out their art (to museums or other institutions) should also track and keep records pertaining to the loan. Where is the piece and for what dates is it there? Which transport company is used and what are the insurance arrangements while in transit? A number of art claims tend to come out of these types of situations, and the best outcomes result from having good documentation.

Investing time in this process will not only help you track price changes, but also be especially helpful in recovering full value in the event of an insurance claim.

Mistake #3: Not having an emergency plan

You might think having an emergency action plan would only apply to you if you were in an earthquake or hurricane zone. Not so. Fire, flood or severe storms can threaten any location and cause tremendous damage to art collections. The best remedy is a written plan that addresses possible threats and seeks to mitigate them.

For example, some coastal properties in South Florida that house art collections have service providers that will pick up and store their art in a secure location when the threat of a hurricane is imminent. Insurers can provide the names of the local contractors that are preapproved for just such services. That said, some collectors take matters into their own hands and attempt to transport art out of a threatened area themselves. This is usually not a good idea, because they are likely to inflict more damage than a professional firm that knows how to pack items and carries the proper insurance.

Ideally, collectors in any part of the world should consider the weather-related dangers that could affect the safety of their artwork.

Fire is an important peril to incorporate into an emergency plan. Even a small fire that does not directly threaten art in a home or building can trigger sprinklers or fire suppression systems that can cause damage. Consult with local fire officials on suggestions to mitigate fire in a way that also protects art.

Collectors needing help in developing a plan should consider many of the “what ifs” of their location, and then consult with their insurance provider for suggestions and resources.

Mistake #4: Not doing long-term conservation

Change is the only constant—in life, and in works of art. With art, change is usually negative in the form of breakdown and decay. All materials degenerate over time, and some very old items do so at an accelerating pace. Important collections need a long-term conservation program to help mitigate irreparable harm.

Often, valuable art is in the hands of private individuals. This places a tremendous responsibility on those individuals to maintain these works. We find the best way to do this is through professional conservators, who are individuals responsible for the preservation and repair of artwork and cultural artifacts. Private collectors can benefit by adopting the same types of conservation programs that museums employ. This includes having conservators do annual inspections of artwork to assess deterioration. These inspections are far more detailed than a regular insurance appraisal designed to determine a piece’s value. A major advantage of these annual inspections is that they give insurance adjusters a baseline of a piece’s condition in the event of a claim.

Finally, the way that the art is exhibited needs to be evaluated. This includes mounting hardware, sunlight intrusion, humidity control and security. The best safeguards against having any problems from those factors is to have a professional do the installation. A professional can assess the environment and work to display the items in the safest manner.

Mistake #5: Not doing legacy planning

No discussion about protecting art is complete without considering its treatment after the current owner or steward dies. Collectors should give as much thought to what happens to their artwork after their death as they do to any aspect of managing the collection while they’re alive.

For example, do they want the collection (or individual pieces) to go to certain individuals or to a museum? Remember, this is an asset class and must be given careful consideration in the estate planning process. Not all estate planners have the expertise needed to assist collectors in making these decisions.

The good news in all of this is that if you avoided the mistakes above—by having good insurance, good record keeping, an emergency plan and a good conservation plan—the art you plan to forward to the next generation is likely to be in great shape.

This report was prepared by, and is reprinted with permission from, VFO Inner Circle.  AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.

Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.

Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures

VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
© Copyright 2021 by AES Nation, LLC. All rights reserved.

No part of this publication may be reproduced or retransmitted in any form or by any means, includ- ing, but not limited to, electronic, mechanical, photocopying, recording or any information storage retrieval system, without the prior written permission of the publisher. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages up to $100,000 per infringement, costs and attorneys’ fees.

This publication should not be utilized as a substitute for professional advice in specific situations. If legal, medical, accounting, financial, consulting, coaching or other professional advice is required, the services of the appropriate professional should be sought. Neither the authors nor the publisher may be held liable in any way for any interpretation or use of the information in this publication.

The authors will make recommendations for solutions for you to explore that are not our own. Any recommendation is always based on the authors’ research and experience.

The information contained herein is accurate to the best of the publisher’s and authors’ knowledge; however, the publisher and authors can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof.

Unless otherwise noted, the source for all data cited regarding financial advisors in this report is CEG Worldwide, LLC. The source for all data cited regarding business owners and other professionals is AES Nation, LLC.