Is your family heirloom a hidden treasure? Television shows featuring auctions and appraisal fairs have ushered the art of appraising into the limelight with fascinating stories—an ancient artifact unknowingly passed down from generation to generation, a rare trinket picked up at a yard sale, or an historic relic found tucked away in the corner of an attic. While appraisals occasionally lead to surprising discoveries, they may also play a key role in developing financial plans. If you know you own expensive items, such as antiques or artwork—or even if you think you might—consider having your valuables appraised for insurance, estate planning, and tax purposes.

An appraisal is an expert valuation of property. Appraisers, practitioners of valuation, are professionals trained to provide more than a guess at an object’s worth—they assess value based on formal methodology and comply with standards and codes of conduct generally practiced in the field. An appraisal can help you make informed financial decisions, as well as provide you with professionally prepared documentation should you need to validate your property’s worth to a third party, such as the Internal Revenue Service (IRS) or an insurer.

The “Value” of an Appraisal

Appraisals can help you secure appropriate insurance coverage, plan your estate, and develop tax strategies. You may not be able to put a price on your antique clock, but an independent appraiser can. Knowing the worth of your valuables can help you tailor your financial plan to your needs.

For insurance purposes, valuation can help you choose appropriate coverage for your property, as well as receive the reimbursement to which you are entitled in the event you need to file a claim. In general, the maximum benefit under homeowners insurance policies applied to the contents of a home is 50% of the coverage bought for the house, though it may be 75% under some policies. Furthermore, most homeowners policies limit coverage for expensive items, such as furs, jewelry, and silver, but protection may be offered at an additional cost.

Under most standard policies, the most that may be claimed for loss to a particular category of property (such as jewelry, furs, or firearms) is limited ($1,500 or $2,500 is common). The category limitations may be increased for an additional premium. Broader coverage, covering losses that are not included in the basic policy, such as mysterious disappearance or breakage, can be obtained via a “scheduled personal property endorsement.” This coverage extension will usually require you to supply bills of sale or appraisals dated within the last few years. Choosing the best approach, either by increasing the existing limits of coverage or scheduling items separately, depends on the possessions involved and the premium formulas of the insurance company.

Certain life events, such as death and divorce, often call for the equitable distribution of property. When a person dies, all possessions of the deceased play a part in the cumulative value of the estate, so having appraisals for the items of value will assist in the division of the estate, as well as the determination of estate tax. Probate often requires that an entire estate be inventoried and valued. In the event of a divorce, appraisals often assist with the division of marital property. Consult your attorney for legal advice.

If you donate an item to a charitable organization, an appraisal may be needed to show the IRS that the charitable donation is worth what you claimed on your tax return. The IRS generally requires a qualified appraisal for deductions over $5,000 claimed for a single item or a collection of similar items, such as coins. Consult your tax professional for more information.

Appraisals may play a valuable role in your overall financial plan. They can help you determine your insurance coverage, as well as your estate and tax strategies. Consider appraising your prized possessions before the need arises.

When you buy homeowners and motor vehicle insurance, you probably file your policies away without looking at them. And, chances are, you may not take them out again until you need to file a claim. However, it’s worth taking a few moments to review your policies before you suffer a loss. Generally, insurance policies carry exclusions—restrictions on what is and is not covered. Here are some common exclusions you may find in your coverage.

Homeowners Insurance

Flood and earthquake damage is generally excluded from standard homeowners policies. To cover flood damage, you must purchase special flood insurance. You may be able to add earthquake coverage to your existing policy; however, premiums may be expensive, depending on your property’s susceptibility to earthquake damage, and deductibles may be high.

Most homeowners policies cover water damage that is sudden or accidental, such as that resulting from a storm to your roof, or from burst pipes. However, damage due to gradual deterioration, such as that caused by a continual plumbing leak, may not be covered. Coverage for resulting mold or mildew damage is generally limited.

Also, your policy may exclude business-related activity that occurs in your home. If you own a home-based business, you may need to buy separate insurance to cover business equipment and personal liability for customers and associates who visit your property.

Motor Vehicle Insurance

Many people assume they are covered when they drive a car they don’t own, but this is not necessarily true. If you share a residence with someone whose car you drive, it’s always best to be listed as a driver on that person’s policy. If you use a vehicle belonging to someone with whom you do not share a residence, coverage may depend on how regularly you use the vehicle. Even if you use the vehicle as seldom as once a week, the insurer may consider this “regular use” and exclude you from coverage in the event of an accident if you are not listed on the policy.

If you customize your vehicle with special tires and a fancy stereo system, your insurer will most likely not cover any more than the car’s worth at the time of initial insurance, without customizations and improvements. When custom equipment is installed and bolted into a car, your policy may exclude it, but you may be able to cover add-ons by paying extra premiums.

Don’t allow yourself to be surprised by the extent of your insurance coverage at the time you need to make a claim. It’s always best to have the coverage you need before you require it. If you’re unsure of your policies’ exclusions, feel free to give us a call. We can help you understand what your insurance does and does not cover, as well as assist you in securing any additional protection you may require.

Flood insurance: staying high and dry

If you don’t live in an area considered to be at high risk for flooding, you may not be aware that your home could nonetheless be vulnerable. Almost one-quarter of flood insurance claims are filed by people living in areas with minimal flood risk, according to the Federal Emergency Management Agency (FEMA). Since almost any building in the country could be damaged in a flood, FEMA recommends that all homeowners prepare in advance for the possibility that flooding could hit their communities.

Secure Appropriate Coverage

Flooding is not covered under homeowners insurance, but special flood insurance policies backed by the federal government can be purchased. Homeowners living in one of nearly 20,000 communities across the country that participate in the National Flood Insurance Program (NFIP) are eligible to purchase insurance. These communities are offered flood coverage for their residents and businesses in exchange for enforcing floodplain management ordinances intended to minimize future flood damage. Flood insurance premiums vary according to risk and coverage levels, but they are generally affordable, especially for homeowners in low-risk areas.

To discourage people from living in areas frequently hit by hurricanes, the government does not allow homeowners in certain high-risk spots to purchase insurance through the NFIP. Instead, these homeowners must buy much more expensive private insurance to protect their residences in case of flooding. You can find out whether you are eligible for NFIP coverage by entering your information at www.floodsmart.gov.

It is essential to secure insurance coverage well before disaster strikes. Because the insurance does not take effect until 30 days after a policy is purchased, you cannot afford to wait until the water is lapping at your door to obtain the necessary protection. It is also wrong to assume the federal government will foot the bill for repairing your home in case of a flood. Federal assistance is only available if a disaster has been formally declared, and then the assistance offered may come in the form of a loan tacked on to your existing mortgage.

Protect Your Property

In addition to buying insurance, there are steps you can take to mitigate the damage to your home if flooding should occur. Sump pumps with back-up power should be installed in the basement. If possible, ensure that the electric fuse box, electric outlets, light sockets, baseboard heaters, and all wiring are located at least 12 inches above the projected flood elevation for your home. Furnaces, water heaters, and major appliances should be similarly placed. To prevent sewage from backing up and entering your home in a flood, have a plumber install an interior or exterior backflow valve. If the risk of your home being flooded is high, you may want to consider sealing any openings around the base of the house, installing a drainage system, constructing floodwalls, or improving exterior walls. Move your most valuable items, especially important documents and family photographs, to the upper floors of the house.

Develop a Plan

It is also useful to prepare a plan that you and your family can put into action in the event that a flood alert is issued. Make a list of tasks for individual family members, such as collecting water for drinking in case the tap water becomes contaminated, moving furniture from the basement to the first or second floor, taking outdoor furniture and other items from the yard indoors, and shutting down electrical, gas, and water utilities before leaving the house.

Finally, practice a flood evacuation with your family, reminding them to stay safe by avoiding flowing water and downed power lines. Floods can be both dangerous and destructive, but even a small amount of preparation can go a long way toward protecting your family and your property, even in major disasters.