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Keep Your Collection in Tune: Insuring Your Musical Instruments

by Wayne Jordan (12/11/12).

Do you want to see what the Cumberland River does to an acoustic guitar? (Photo: Brad Paisley
http://twitpic.com/1lupkk)

They looked like a line of ants at a picnic. Having finished their gig and packed their instruments, the band steadily loaded their van. An unbroken stream of musicians and equipment flowed from inside the Washington, D.C., hotel to the parking lot. No one was quite sure when the theft occurred; it seemed as if the open van was never out of sight. But, at some point, the bass player’s 1958 Fender Precision Bass disappeared. Valued at more than $10,000 the instrument would not be easy to replace. The bass player was more than distraught: his insurance wouldn’t cover the loss, and he didn’t have the money for a new one.

Stories of instruments lost or damaged are commonplace among working musicians: a cello left in the trunk of a cab, a double bass destroyed by airport baggage handlers, a flood or fire that ravages an entire collection. For working musicians the loss of an instrument cannot be calculated entirely in dollars and cents. Musicians ardently seek instruments that will express “their sound,” and such instruments are tough to find and even tougher to replace. For collectors of rare instruments, money cannot compensate for the loss of a cultural icon (but it helps).

Being insured certainly takes some of the sting out of a loss. Perhaps the worst musical instrument loss in recent memory was the flood at the Soundcheck Nashville warehouse in May of 2010. The warehouse stored the touring equipment of some of Nashville’s most popular entertainers, among them Vince Gill, Keith Urban and Brad Paisley. All the instruments and equipment inside the warehouse were destroyed. Urban had to borrow a guitar from a friend in order to perform the evening after the flood. Stored as well were instruments and artifacts belonging to Nashville’s Country Music Hall of Fame. Lost forever were guitars belonging to Johnny Cash, Pete Townshend and Jimi Hendrix.

Of course, having one’s musical instruments insured is financially prudent. For a musician or collector, the only thing worse than not having adequate insurance coverage is believing that they had adequate coverage when they actually didn’t.

Too many musicians believe that adding a rider to their homeowner’s insurance will provide them with the coverage that they need. But, homeowner policies and their attendant riders are often insufficient for the insurance needs of working musicians or collectors. Instruments covered by a homeowner’s policy are subject to the limitations of the insurance offered on the home. Many policies don’t offer insurance coverage for flood, wind, theft or a business-related recording studio or practice space. Using the instruments professionally outside the home is rarely covered by a homeowner’s policy. Working as a musician is a business, and businesses require business or specialty insurance. Even if a collector is insured for a variety of losses in a homeowners or renters policy, their ability to collect on any given loss will be subject to the policy’s coverage limits and deductibles.

Some of the dozens of acoustic guitars damaged in the Soundcheck Nashville warehouse in May of 2010. (Photo: Jeff Senn Guitars)

To be confident that one’s musical instruments and equipment are covered for all the risks that a musician or collector might encounter, it’s critical that they work with an insurer who understands the risks of moving, storing and repairing different types of musical instruments. Heritage Insurance in Feasterville, Pa., is just such an insurer.

Ellis Hershman, vice president of Heritage, pioneered the concept of specialized musical instrument insurance back in 1991. At the time, says Hershman, insurance companies were reluctant to offer musical instrument insurance for professionals and collectors because they didn’t understand the risks and couldn’t figure out how to underwrite the policies. Mr. Hershman was in a unique position to understand the needs of travelling musicians. As an organizer of the Philadelphia Folk Festival since the 1960s, a player of guitar, mandolin and banjo and collector of pre-World War Two instruments, he had first-hand experience with the damage and loss that musicians encountered. He took his ideas for an insurance product to several insurers and eventually found an underwriter who understood what needed to be done.

Underwriting losses on musical instruments is quite different than underwriting losses on real estate and household goods. Homes can be repaired and household goods can be replaced without significant loss of value to either. Calculating premiums for such losses is fairly straightforward. Damage to a rare or collectible instrument, however, usually causes a loss of value that must be accounted for. As with all collectibles, the condition of a musical instrument is a major determinant of its value, and damage can reduce the value of an instrument by 50 percent or more.

When an insurance company underwrites musical instruments, it agrees to share the risk of damage in storing and transporting the instruments as well as repairing and protecting the instrument from loss of value. Owners pay insurance premiums for the required coverage and, in the event of a loss, the insurance company covers the costs. Premium costs will vary with circumstances (exposures) and the value and type of instruments that are being insured. For example, if one regularly checks her 18th-century Goffriller cello to airport baggage handlers (heaven forbid!) the risk of damage is significantly greater than if the cellist travels locally with the cello safely strapped to the back seat of her Toyota Corolla. A Steinway grand piano that never leaves a living room will be cheaper to insure than a concert Steinway that moves from state to state in a moving van and gets bounced up and down stairs to the stage. Better musical instrument insurers will custom-tailor coverage to fit the instruments, circumstances and preferences of the owner.

A violin after its varnish melted from inside of a hot car.

In addition to describing the various exposures that an instrument will have, value benchmarks must be established when a policy is purchased. And don’t confuse value with the price paid for the instrument. Mechanical instruments, like pianos, have more in common with automobiles than they do with violins. Pianos will depreciate over time, just like cars. Prices on new pianos, though, rise annually at an alarming rate (just like cars). Good-quality collectible orchestral string instruments will usually appreciate in value. Consideration should be given to what it will take to replace a lost instrument with one of equal value. Also important is the amount of funds that might be available to the owner in case of a loss (let’s face it: most musicians are chronically short on funds). The answers to those questions will determine the type of valuation that will be used for an instrument. Owners will choose one of three ways to value their instruments: Agreed Value, Actual Cash Value or Replacement Cost:

Agreed Value
Agreed Value means that the owner and the insurance company agree ahead of time on the amount that will be paid for the instrument in case of a loss. The owner submits an appraisal and if the insurer finds the appraisal acceptable then value is established at the amount of the appraisal. If there is a loss, the amount to be paid has already been agreed upon. Since there’s no dickering over the amount, claims can be settled quickly.

Actual Cash Value
Having an Actual Cash Value (ACV) policy is a little more problematic for both parties. With an ACV policy, the owner provides the insurer with their best estimate of the market value (actual cash value) of the instrument at the time the policy is issued. If the insurer believes the amount to be reasonable then the owner will pay premiums based on that amount. When a loss occurs, the insurance company will ask to owner to justify the value submitted or it may decide on its own what the instrument is worth and pay that amount. Payouts on ACV policies will be equal to the market value of the instrument at the time of loss, even if the owner has been paying premiums based on a higher amount.

Replacement Cost
Often, working musicians prefer to have their instruments valued at Replacement Cost. Well-travelled and often-played instruments wear out, and worn instruments depreciate in value. If, at the time of loss, an owner prefers to be reimbursed for the cost of a new replacement instrument, they would require a Replacement Cost policy. For example, if a musician bought a new Yamaha grand piano for $46,000 in 1997 and the 2013 price for the same piano $58,000, the 2013 loss payout would be $58,000. If instead the insured had purchased an Actual Cash Value policy, the payout would be the market value of a used 1997 Yamaha grand, which is significantly less than $58,000.

A Christie’s employee holds a 1729 Stradivari violin, referred to as “Solomon, Ex-Lambert,” which sold for $2.728 million in 2007. Your fiddle is probably not worth millions, but do you need to get special insurance for it? Check with your agent.

Minimum premiums, deductibles and conditions & exclusions may all vary with the insurer. Musical instrument insurers are generally willing to tailor coverage to fit the needs of the musician or collector, but to find the best price on a policy it may be necessary to shop around. The top insurers in the field are:

Heritage Insurance;
Merz-Hube Insurance;
The Anderson Group;
Total Dollar Insurance (for stringed instruments only);
Clarion Associates.

As any insurance agent will tell you, the time to think about insurance is before you need it. So, pick up a pencil right now and put this on your calendar: “check on my instrument insurance.” You’ll be glad you did.

Wayne Jordan spent more than 40 years in the music business as a performer, teacher, repairman and music store owner. In 25 years of musical instrument retailing he has bought, sold, rented or repaired thousands of pianos, band & orchestra, combo, and folk instruments. Wayne is currently a Virginia-licensed auctioneer and certified personal property appraiser. For more info, visit Wayne Jordan Auctions.

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