The Truth about Insurance Appraisals
by Johanne Yakula
"What do you mean, $100 for my sterling silver bowl? This insurance appraisal says it is worth $1000 !”
This type of conversation happens daily because most people do not understand the truth about insurance appraisals.
Viewers of radio or television programs where the owner of the rare vase is told she should insure it for $10,000 often do not understand what this really means. Most people assume that it is what they would receive in cold hard cash should they decide to sell it at some future date. In some unusual situations it may be, but in almost all cases the appraiser has identified on some scale the likelihood of replacing this piece should something happen to it. And this is what insurance does.
Insurance is meant to replace what you lost, but it is rarely tied in to its actual value if you chose to sell it.
This is roughly how it works:
Let’s say you bought a piece of furniture in a antique shop for $1,000. The piece is destroyed in a fire. The insurance company will ask you for some proof that you owned such a piece, especially if the majority of your belongings are of the IKEA type.
If you cannot prove that you owned it they may simply provide you with a lower settlement to replace the piece with something else - perhaps a modern piece with the same function ie: chest of drawers.
In order to ensure you get your replacement value you should have either the original bill or a photograph of it if possible - that way the item can be replaced at the original value. If this piece is indeed very special it is necessary that you have this information of your claim may be denied.
It sounds like a good deal - as long as you are paying premiums on $1000 however you won't be. The insurance company instead says “We will insure your article of furniture but in order to replace it we may have to go outside your market to get it and that will cost a lot more...there’s the cost of the item (it could cost $1400 in Toronto), there may be a buyer’s premium or a commission to pay, there’s the cost of packing, shipping, and currency exchange if it’s only available outside the country and so on...therefore, we will need to insure your $1000 piece for $2400.
Your insurance company may require that you pay different fees for high risk items - often called a fine arts rider. Some companies may require you to have a house alarm if you have several items of high value.What this means is that you will be paying premiums on $2400, not $1000.
. Now, let's say you have paid insurance on the appraised replacement value for a couple of years, but you decide to sell it.
Your article of furniture cost you $1000 originally. This means that the dealer may have bought it for anywhere from $500 - $600. If you sell it to a reseller, your furniture piece, appraised for insurance replacement at $2400 may net you only $600!
Additionally, if you changed it in any way ( refinished the piece in an inappropriate color or reupholstered a piece of furniture in a wild fun fur) - you may not be able to sell it at all! So now, the next time to hear the words "If I were you I would insure your piece for $5,000" you will know exactly what that means!
Written by Johanne Yakula
From Times Past
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