When discussing homeowners insurance with a client, the agent should make sure that the client understands there is often a need to increase the coverage for these classes of property, either by endorsement to the homeowners policy or by separate insurance (a boat owners' policy, for example).

Other areas to be explored for possible coverage needs include the client's outside interests and hobbies. Photography, sports, collecting antiques or memorabilia may call for additional insurance. Emphasize to the client that although these particular items are not limited by dollar amount in the basic policy, there may not be enough insurance to cover all of them plus the other unscheduled personal property in the home in case of a large or total loss. Think, for example, of a $50,000 grand piano. If the insured has a $200,000 home, with 50% (or $100,000) for personal property, in event of a total loss that leaves, after replacing the piano, only $50,000 to replace an entire household's contents.

Also, many of these items—because of their portable nature and use in many places—are subject to losses not covered by the homeowners forms. A strong selling point for the agent is the “open perils” coverage provided by scheduling. For example, the insured may carry an expensive camera on a trip. While photographing the Grand Canyon, she drops it over the edge of the canyon and breaks it. There is no named peril that provides coverage. Also, neither the ISO schedule HO 04 61 10 00 nor the AAIS schedule ML-61 exclude loss by flood or earthquake, as do the underlying homeowners policies.

Additionally, both ISO endorsement HO 04 90 10 00 , personal property replacement cost, and AAIS endorsement HO 4855 01 06, replacement value loss settlement terms, provide replacement cost coverage for personal property. But when either of these endorsements is attached to the homeowners and certain property is scheduled, that property also receives replacement cost coverage. Replacement coverage, up to the limit of insurance per item, applies to scheduled jewelry, furs, cameras, musical instruments, silverware, and golfing equipment, and, in the AAIS form, bicycles.

Many times the coverage C increased special limits of liability endorsements, ISO HO 04 65 or AAIS HO 2565 01 06, may be used to provide additional amounts of coverage for valuable items. However, these endorsements do not provide coverage for additional perils. Although the dollar amounts are increased, the scope of the coverage remains that of the underlying policy. Increasing the limit for jewelry, for example, means that the total amount for loss by theft is greater, but there is a per-item limit of $1500 on the ISO form. Further, the amount of coverage C insurance remains the same; increasing the special limits does not provide an additional amount of insurance in event of a loss to unscheduled personal property.

This discussion, therefore, focuses on the advantages of scheduling jewelry, fine arts, cameras, furs, silver, bicycles, and stamps and coins, which are the items frequently scheduled on the personal property endorsements, the HO 04 61 and AAIS HO 3061 01 06. Underwriting concerns for these classes of property are also reviewed.

Jewelry

Sublimits on certain classes of expensive personal property in the homeowners exist because the policy is written and priced for the “average” exposure. Anyone who has items in excess of the limits in the policy is deemed to present a risk greater than the “average.” Because of the susceptibility to theft and “mysterious disappearance,” the premium to insure jewelry in particular can be substantial, which may give some insureds second thoughts about scheduling. However, there are definite benefits in scheduling the property. First, as stated above, scheduling provides open perils coverage.

Coverage for personal property on the homeowners is on a named perils basis, so a woman whose toddler throws her diamond engagement ring down the garbage disposal would find no coverage under her homeowners policy. The only excluded causes of loss that apply to scheduled jewelry are wear and tear, gradual deterioration or inherent vice, insects or vermin, war, or nuclear hazard. Gold, for example, will wear away after a time (as when a gold ring is worn for a long period of time), but for the most the coverage is broad enough to allow for virtually all that may befall jewelry. By scheduling, jewelry is even covered for loss resulting from flood or earthquake.

Scheduling jewelry also provides some coverage for newly acquired jewelry if jewelry is already insured—the lesser of 25% of the amount of insurance for that class, or $10,000. The insured must advise the company within 30 days of any acquisitions, and pay any additional premium from the date of acquisition. This coverage does not extend past the policy period.

Depending upon the underwriting guidelines of a particular insurer, most will accept risks with extra jewelry values. Once the total schedule exceeds the guidelines, the underwriter should be contacted for authorization and perhaps for an excess rate. Some companies also have a limit on the value of any one piece of jewelry in the collection.

The insurer will evaluate the prospective insured, any safety precautions taken by the client with regard to the jewelry, and the quality of the schedule itself. Most insurance companies are looking for clients who are prudent, average, everyday citizens. Since jewelry readily lends itself to insurance fraud, many times the underwriter will need information the client may perceive as an infringement on his or her privacy. However, the underwriter needs as clear a picture as possible of this person to whom the insurer may be committing large sums of money for items that are easily lost or stolen. It is up to the agent to know the customer and his or her lifestyle, so that that knowledge may be conveyed to the underwriter.

Often underwriters hesitate to write expensive jewelry, particularly rings, for men. The reason is that men are perceived to be less careful about jewelry than are women. For example, a woman rarely removes her engagement and wedding rings, whereas a man will often remove a ring or watch, say, while working around the house or on a car. (Of course, there are always exceptions!) It is not unknown for a man to remove a ring while playing golf, leave it in a locker, and return only to find the locker has been broken into and the ring is gone. Another consideration is that a man's diamond ring is frequently larger than a woman's and more prone to attract attention.

As noted above, the underwriter will frequently look at whether the jewelry schedule is in line with what appears to be the client's lifestyle. A client insured on a tenant homeowners policy with minimal contents coverage would not seem the ideal candidate for a large jewelry schedule. (One underwriter received a tenant homeowners submission for $10,000 contents and a $50,000 schedule of jewelry and furs; no occupation given.) Alternatively, if an insured's occupation appears to subject him or her to abnormal risk of theft (for example, clerking at a convenience store), the underwriter may choose not to insure the jewelry.

Extra safety precautions may be required by the insurer. The underwriter may inquire where the jewelry is kept when not being worn, and may ask if the client has a central station alarm. Local alarms are usually not considered good enough. The theory is that if the insured can afford large amounts of jewelry, he or she can afford to protect them.

For large individual items, the insurer may require that they be kept in a bank vault when not being worn. The company will usually offer a rate credit in exchange for this promise. However, the insured must notify the company before removing the item and again when it has been returned to the vault. Notifying the agent meets the terms of this requirement. The agent should stress the importance of this requirement to the insured. If the client does not notify the company that jewelry has been removed from the vault and a loss occurs, some company endorsements eliminate coverage completely; others will pay only a percentage. Usually, the company will not charge any extra premium for the short time the piece of jewelry is out of the vault, unless there is a loss.

In an interesting twist, if a loss occurs to jewelry out of vault when the insured has failed to notify the company, there is coverage under the homeowners policy (subject to the applicable perils, limits, and exclusions). The homeowners policy excludes coverage for “articles separately described and specifically insured in this or other insurance.” But, when the item is out of the vault under these circumstances, it is not “specifically insured.” It is not enough, for purposes of excluding coverage, that the item is “separately described.” The purpose of this limitation is to avoid a double recovery by the insured, and there is no danger of that in this situation.

An insurer may, as well as requiring jewelry be kept in a vault, use a different rate for large items. Through use of a “consent to rate” form, by which the insured agrees to a different rate, an insurer can increase the premium proportionately with the perceived risk. Another method of controlling the exposure the insurer may use is to cushion itself from a large jewelry loss through the use of a deductible. However, this is most effective on a schedule with a large number of pieces. Placing a $1,000 deductible on a $50,000 ring will not mitigate a loss, except for the loss of a stone from the setting. The agent should carefully explain the deductible to the insured.

The final thing an underwriter will consider is the quality of the schedule itself. The agent should check with the company for its appraisal requirements. Many times for items under a certain dollar amount a description of the item is enough. For larger items most companies require an appraisal from a reputable jeweler or certified gemologist. There are two appraisal systems currently in use in the United States. These are the American Gem Society (AGS) and the Gemological Institute of America (GIA) systems. Since it is not uncommon to buy a diamond abroad, it is probably wise to have the stone re-appraised in the U.S. Otherwise, difficulties may arise is settling on a value should a loss occur.

Typically, the “four C's” affect the value of a diamond. These are cut,color, clarity, and carat weight. In an appraisal, “cut” refers to the quality of the cutting itself, rather than the shape, which means, for example, round, pear, or marquise (also known as fancy shapes). The difference may be seen when thinking of the difference between a round brilliant and an emerald cut diamond. The emerald cut diamond requires fewer cuts; consequently the stone lacks the “sparkle” of a brilliant cut, which has the many facets that reflect light. Cut is so important that a diamond's value may be significantly affected. Consequently, a larger fancy shaped diamond may be less valuable than a smaller round brilliant cut diamond.

“Color,” the next of the “four C's,” refers to the presence of color in a diamond. A colorless stone is rarely seen and is quite valuable. Most diamonds on the market have a trace of yellow, gray, or brown. The color of a diamond can be color-enhanced. A good appraisal should note this.

“Clarity” refers to the presence of blemishes on the surface of the diamond, or inclusions within it. A flawless diamond is extremely rare; most diamonds readily available contain a flaw, however minute. If a stone's clarity has been enhanced through use of a laser, as is now possible, this must be disclosed on the appraisal.

Finally, “carat” refers to the weight of a diamond. One carat equals .2 gram. Since a truly large diamond is rare, carat weight has the most impact on value.

Jewelry appraisers may vary greatly in their abilities. For example, a certified gemologist has completed course work and passed examinations. If uncertain, the agent or client can contact the American Gem Society (702-255-6500; http://www.ags.org), or the National Association of Jewelry Appraisers (301-261-8270; P.O. Box 6558, Annapolis, MD 21401-0558) for the name of a reputable appraiser in their area. Members of both organizations agree to abide by a strict code of ethics.

Often clients are hesitant to leave their jewelry out of their sight for an extended time while it is being appraised. This is a legitimate concern and can be handled in two different ways. The first is to obtain the names of several reputable jewelers in the area who are known to be honest and to prepare good appraisals. The second is a somewhat new method. There are now firms that, for a flat fee, will come into a client's home and do appraisals on the spot. Although more expensive than taking the items to a jewelry store, this procedure may do much to ease the client's mind about the safety of his or her jewelry.

The procedure that will be followed in the event of a loss should be reviewed carefully and thoroughly with a client. If a $50,000 ring is stolen, the insured will not necessarily be given a check for $50,000. Remember, the insurer has the option to replace the ring from its own sources. They may be able to buy the same ring for $30,000. They will do so, and deliver the ring to the insured. Neither the HO 04 61 nor the HO 2565 provides an agreed amount for jewelry, so, in event of a loss the company has the option of the least of the actual cash value at the time of the loss, the amount it would cost to repair or replace the item, or the amount of insurance.

Some clients, therefore, think that the best approach to take is to schedule jewelry for less than the appraisal amount, so as not to pay premium on something they feel they will not recover. This is unwise, since if the insurer cannot replace the jewelry the likely amount paid will be the amount of insurance. There are some insurers that will write jewelry on an agreed value basis; check with the insurer to see if this is an option.

It is also important for the client to understand the pair and set clause. It is not uncommon for one earring to be lost. The insurer has the right to repair or replace any part (as, one earring) to restore the pair or set to its value before the loss, or to pay the difference between actual cash value before and after the loss. The insurer is not obligated to pay the value of a new pair of earrings.

Cameras

There are advantages to scheduling that the agent and insured should consider. First, although cameras are not limited by the homeowners policy, they can quickly amount to a large exposure for an insured who is an active hobbyist. In case of a large fire, the camera collection might use up much of the limit of coverage C, particularly if the insured has video camcorders or a digital camera.

Second, cameras and their lenses are fragile items and subject to breakage. Even if the insured has purchased open perils on contents (by using ISO endorsement HO 00 15 on an HO 00 03 (1991 edition) or AAIS form 5 or ISO HO 00 05 10 00 ), those forms still exclude breakage of cameras. Breakage coverage for cameras is included when scheduling them. And, as noted above, there are no exclusions for loss resulting from flood or earthquake.

Third, newly acquired cameras and equipment are covered for the lesser of 25% of the amount of insurance for that class of property or $10,000. The insured must report the new items within 30 days of acquiring them, and pay the premium from the date of acquisition.

The value of most cameras and other photographic equipment can be readily determined. Current prices are usually available. When scheduling cameras, a receipt showing what the insured paid for the item is usually enough.

When insuring camera equipment, insurers are looking for someone who is careful with his or her property and who can afford photography as a hobby. The exposure presented by a professional photographer is not contemplated in the rates.

In event of a covered loss, settlement is the least of the actual cash value at the time of the loss; the amount of repair or replacement; or the amount of insurance.

Fine Arts

Many people have extensive art collections—as both a hobby and as an investment. These items are sometimes difficult to value, but can amount to large sums.

There are several advantages to scheduling fine arts. First, losses are adjusted on an agreed value basis. In the event of a total loss, the amount to be paid will be the amount of insurance written on that particular item.

Second, breakage, which is excluded by both the homeowners policy and the personal property form, may be included if the insured agrees to pay a higher rate. Note, however, that if breakage occurs that is caused by fire, lightning, explosion, aircraft, collision, windstorm, earthquake, flood, malicious damage or theft, or derailment or overturn of a conveyance, there is coverage. By purchasing breakage coverage, therefore, the insured buys coverage for breakage not caused by one of these perils— accidentally dropping a piece of art glass is a good example.

Third, it is not uncommon for an insured to display artwork in her place of business. The question could therefore arise as to whether the art is property used in business, and so subject to the homeowners policy limitation. Scheduling eliminates the problem.

Newly acquired fine arts are afforded actual cash value coverage (subject to a limit of 25% of the amount of insurance for scheduled fine arts). The insured must notify the company within 90 days of acquisition, and pay the additional premium from date of acquisition.

Finally, as noted elsewhere, there are no exclusions for loss caused by water damage or earthquake on the HO 04 61 or on the HO 3061 01 06. Loss caused by flood, for example, is covered.

Although coverage for fine arts is limited to the United States and Canada, and breakage, if desired, must be purchased, no deductible applies. Frequently a company will apply alarm credits to the premium, making the final cost to the insured extremely reasonable.

When establishing a value for fine arts, an appraisal is usually preferred to a receipt showing what the insured paid. Many times an insured may run across a “good deal” and buy a painting or other work of art for considerably less than its real worth. It is important to remember that it is the responsibility of the client to establish value, and insure appropriately. The artist should be authenticated and as with many scheduled items, the condition of the piece of art is vitally important.

Golfer's Equipment

The avid golfer may have clubs and equipment worth thousands of dollars. These items are often away from the home and in places that may not be very secure—such as on a golf cart, in the car, or in a locker room.

By scheduling golf equipment, the insured obtains open perils coverage. Some of the extras include coverage for mysterious disappearance (leaving a club on the course) and breakage (clubs have been known to break when inadvertently striking a rock). As with other scheduled items, the insured golf clubs are not subject to a deductible. Golfer's equipment coverage also includes the insured's street clothing while contained in a locker when the insured is playing golf.

Furs

When insuring furs, the agent needs to be aware of the insured's lifestyle. Often furs are ready targets for thieves and vandals. Due to market conditions, the price of furs often varies more than the price of other types of clothing. Many companies will require new appraisals of furs regularly. The insured must be made aware that furs are “high ticket” items that depreciate dramatically. Insuring a new mink coat for $10,000 will probably result in a much lower settlement than anticipated should a loss occur. Unfortunately, this is a result of the market and not of the insurance contract.

Newly acquired furs are covered for the lesser of 25% of the amount for that class of property already insured, or $10,000. The insured must notify the company within 30 days of acquisition, and pay the additional premium from date of acquisition.

Musical Instruments

Many people have musical instruments in their home. These may range from a child's band instrument to an expensive grand piano. What they have in common is that they are rather easily damaged; are targets for thieves and vandals; and hold or increase in value.

The agent should remind the client that there is no coverage for “professional use” of the musical instruments. This includes any performance for remuneration. Some people belong to a small band or other musical group which performs only on weekends— at weddings, bar mitzvahs, etc. They may not consider themselves to be “professionals,” but the personal property form does. In order to be properly covered, these instruments need to be indicated and rated for professional use.

As with jewelry, furs, and cameras, there is coverage for newly acquired property. The lesser of 25 percent of the amount already scheduled for musical instruments, or $10,000, is available. The insured must notify the company with thirty days of acquisition, and pay the additional premium from the date acquired. Coverage is worldwide.

Bicycles

The AAIS form HO 3061 01 06 may be used to schedule bicycles. It is important to check with an individual insurer before submitting bicycles. Some insurers have taken the position that these are easily stolen and, without a deductible, coverage becomes “first dollar,” placing the insurer in the position of regularly replacing bicycles. Too, the popularity of mountain biking means that this type of cycling subjects bicycles to unusual exposures.

Along with the perils of war, civil authority, nuclear hazard, and wear and tear, deterioration, latent defect, or insect or vermin damage, the AAIS form adds exclusions for corrosion or rust and the actual work on or handling of bicycles or a process to repair, adjust, service, or maintain them.

Silverware

The exposure to loss of silverware is much less than that of jewelry. The person who steals jewelry can easily dispose of it; silverware is more difficult. Also, silverware is used almost exclusively in the home, while jewelry is worn everywhere.

If the pattern is still being manufactured, the agent should suggest that the client obtain a current price list. The items owned by the client can then be insured for the indicated prices. Most companies will accept this form of valuation. The insured should be encouraged to obtain new price lists on a regular basis.

Silverware that no longer being manufactured presents a different problem. There are two ways to determine value. One is to have it appraised. The other is to contact a silver replacement company for a price list. If you as the agent or the customer has access to the internet, a search may locate a firm that specializes in replacement of silver.

Antique silver pieces other than silverware, such as coffee or tea pots, should be appraised by a competent appraisal service. The value of these pieces lies in the particular silversmith and origin, not in the value of the metal itself, as it does with most modern silverware. There's quite a difference in price between solid silver and silverplate, and it takes an expert to know the difference.

Stamp and Coin Collections

Two of the most popular hobbies in the world are stamp and coin collecting. Often such collections are worth many thousands of dollars. The large values combined with small, often delicate items might appear to be difficult, if not impossible, to insure. However, such collectors are very proud of their collections, and are extremely careful to protect them.

From an underwriting standpoint, the most desirable stamp collector is one who keeps complete records about his or her collection. The records include descriptions of each stamp, purchase date, purchase price, and current value (substantiated with an appraisal or current price guide). The condition of the stamps is important; are there creases or tears in them, or are they in mint condition and in a protective cover? Are they stored away from humidity?

Often collectors trade and sell stamps. The difficult question is this: how much trading and selling changes a collector into a dealer? A good rule of thumb is that the hobbyist is interested in improving his or her collection and not in trading for profit.

Coin collections are subject to underwriting guidelines similar to those for stamps. These collectors usually take good care of their property and are willing to provide substantiation of the values. While coins are not as easily destroyed by fire as are stamps, their value may depend upon their condition. Heat and smoke may tarnish or distort coins thus reducing their value. (Of course, since the policy covers direct physical loss, coins damaged by heat or smoke are covered; depreciation is not.) Scratches and dings on the surface also affect the value. Also, collections of current coins and currency may be subject to greater loss from theft, because the money can be spent.

When silver was eliminated from United States coins, the older ones with silver became more valuable and more attractive to collectors. However, they also became more attractive to thieves. Safety precautions—such as a safe or central station alarm—may be required by an underwriter prior to insuring a large coin collection.