Do You Have an Insurance Coverage Gap for Your Valuables? You May Be Surprised to Learn You Do

People love expensive things. They love showing them off to other people. They love buying them, wearing them, hanging them on walls and casually saying things like, "This old thing?" when someone notices, even though they are totally excited about it being noticed.

What they love considerably less is thinking about what happens if those things disappear, break, burn, flood, fall off their wrist or get stolen from their hotel room while they are downstairs ordering coffee.

This is where insurance for valuable items comes in. And yes, I know what you are thinking: "I already have homeowners insurance. I am covered." Not the case — see my Kiplinger article Wait, My Homeowners Insurance Limits What?

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Think of your standard homeowners policy like a carry-on bag. It is great for essentials. It is not designed to safely transport a Rolex, a diamond necklace, a rare painting and a fur coat without consequences. Big consequences.

Covering your fancy stuff

Most homeowners policies do cover personal property. That is true. What they do not do well is cover high-value or unique personal property — your fancy stuff. The stuff you're wearing when you raise your pinkie during high tea.

High-value items almost always live inside personal property sublimits. Jewelry, watches, furs, fine art, collectibles and memorabilia are usually capped at amounts that sound reasonable — until you remember what these items actually cost. A few thousand dollars covered here. A few thousand dollars covered there. Meanwhile, the ring on your finger cost more than your first car. (Well, my first car, for sure.)

It is not that insurers are being sneaky. It is that a homeowners policy is built for couches, clothes and televisions. You would not want to pay the premium on a policy that covers expensive firearms when you don't own any.

Assuming those items are fully covered under a basic policy is like assuming the airline that lost your luggage will pay for all the expensive jewelry you stuffed in your bag. Technically, there is coverage, but not the kind of coverage needed to pay for thousands of dollars in lost jewels.

People tend to discover coverage gaps the same way they discover termites — after the damage is done. A ring slips off in the ocean. A watch disappears from a hotel room. A painting cracks during a move. A fire destroys the house or causes the kind of smoke damage where everything smells like a campfire.

Insurance companies did not invent special coverage for valuables to upsell you or make you mad. Honest. They invented it because these items should be treated differently from regular household stuff.

Valuable items tend to be smaller, easier to lose, easier to steal, much harder to value and harder to replace (sometimes even impossible to value and/or replace). They are also more likely to leave the house. A couch stays put. A necklace can go anywhere.

What to do to get these items covered

"Scheduling an item" means you are telling the insurer exactly what it is, what it is worth and how it should be insured. In return, you usually get broader coverage, fewer exclusions and claims that make sense in the real world.

Another quiet trap is valuation. People assume "replacement value" means "what they paid." Sometimes it does. Sometimes it absolutely does not. Art appreciates. Watches spike in value. Vintage jewelry is not sitting on a shelf waiting to be bought at yesterday's price. And custom pieces often cannot be replaced at all, only re-created at a much higher cost, if they can be re-created at all.

Scheduled coverage forces you to have this conversation upfront. Appraisals get updated. Values get agreed upon. Expectations get aligned before anything bad happens. That's what it is designed to do. That alignment is worth far more than the premium difference, if you ask me.

Other issues to consider

There is another reason people have insurance issues with valuables, and it has nothing to do with money. It is sentimentality.

For instance, they may try to insure something for more than it's worth and discover that their expectations are not aligned with the reality of what they would get for the item if something happened to it.

People also tend to assume their items are safest locked up at home. That is often not the case. I've seen a wall safe pulled out through an outside wall. Seriously.

Theft rates spike during travel — when you leave your valuables at home and when you have them with you. Losses can happen when you're moving. Damage can happen during renovations. Storage units can flood. The point is that it's not enough to simply "secure" your valuables — you need to insure them, too.

When a scheduled item is lost or damaged, the claim process is usually faster, cleaner and less adversarial. There is less arguing about whether it existed, what it was worth or whether it fits inside a personal property sublimit. The carrier already knows what the item is. That changes the entire tone of the conversation.

Anything that would make you say, "That was expensive" or "I would be sick if that disappeared" probably deserves a closer look:

• Artwork
• Antiques
• Musical instruments
• High-end cameras
• Designer handbags
• Wine collections
• Firearms
• Rare books
• Sports memorabilia
• Coins
• Stamps

Buying insurance for your valuable items is not about being fancy or paranoid. It is about matching coverage to reality, or at least what you think is your reality.

If you own things that would cause real financial pain if they were lost, stolen or damaged, relying on standard homeowners coverage is like locking your screen door and thinking your home is totally secure, even though the dog has run through the screen half a dozen times.

Want to learn more about insurance? Visit icgs.org.

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