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Question: I have a question for you. When a personal property appraisal has been done for an insurance coverage, how many years before it needs to be re-appraised? And would a new appraisal raise the amount of the insurance premium?
Answer: Insurance coverage appraisals are done to provide adequate coverage of personal property either not covered under a standard homeowner policy or to establish a set amount of recovery in the event of a loss. The insurance company uses the amounts to set premiums to that end. Since most policies are in effect for one year, the amounts will remain in place for the stated amount until the anniversary when a new policy is issued or renewed. At that time the owner may wish to revise the coverage if a new appraisal is done, but most slide along, using the same figures assuming their coverage is still adequate.
If the economy or the markets are stable, this has proved to be somewhat acceptable, although not ideal. One can continue using the same appraisal amounts until the insurance company requests an update or they themselves institute a change. As far as I know, most insurance companies have their own internal standards for how long an appraisal can be utilized. (I’ve heard of people using the same appraisal amounts for up to seven years before changing.)
If there is industry guidance, it seems to be that three years is a good allotment, although, I haven’t seen this in writing. This makes sense in a slow moving economy where prices are rising only slightly per year. It does not make sense, however, in a volatile or fluctuating market where prices are rising or falling due to many reasons. If the market is widespread, such as the downturn in 2008, it would be wise to suggest an appraisal update on almost every item. On the other hand, if only some of the items are affected, then only they need to be appraised. For example, silver prices may fluctuate wildly and coverage amounts from a year ago may not be sufficient today, or vice-versa. Certain art may escalate rapidly due to the death of an artist, special gallery showings, or record prices at auction. It would be prudent to revise those appraisals as well.
Some insurance companies now have in place special coverage which will actually pay a homeowner up to 150% of the stated coverage amounts in the event of a loss. Others may increase coverage amounts on an annual basis at a stated amount. It might be wise to advise your client to check on their type of policy and how coverage is handled.
The best advice is to have clients check their coverage and appraisals every year, even if no revisions are made or suggested. Most will not.
An updated appraisal does not necessarily mean higher premiums – even if the stated amounts have risen. The insurance company may have changed their rates and lowered certain categories. They may have lifted restrictions. They may have designed new pricing features and add-ons. One never knows.
If I were an astute appraisal marketer, I would probably design a letter to go out automatically at the anniversary of every client’s appraisal suggesting that a review be undertaken. This would provide assurance that coverage amounts are adequate, that any additions or deletions are noted, and that the cost of such an update would probably be a lot less in the long run than having to do an entirely new appraisal in 5, 6, or 7 years. Hope this helps. I would welcome other suggestions.