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Should I insure my handbag?

Who doesn’t love their handbag? It contains everything you could possibly need from money and credit cards, makeup and phone, to a wide range of accessories that are absolutely necessary for any occasion.

What is more, handbags look good and the right handbag may even appreciate in value and become a collector’s item. The cachet of a Chanel clutch or a Louis Vuitton pochette in monogram canvas does more than just complete an outfit, it makes a bold statement about the owner.

At KoverNow we like all things that are used long term, with purpose, whilst bringing some fun into our lives. So it is no surprise that despite, rising inflation and increased financial pressure on households across the world, the global luxury handbag market is estimated to grow at a CAGR of 5.9% between now and 2031. This trend is particularly pronounced in our home market in Asia,  thanks to its improving spending power.

Luxury handbags, along with jewellery, fine wine and art are part of the burgeoning collectibles category, which saw sales at top auction houses quadrupling between 2012 and 2019. For collectors, the value comes as much from the superior craftsmanship and exclusivity of the handbag as it does from its worth, even during turbulent times.

Despite all this, handbags are often the last item on the list when it comes to insurance. Which is strange, because they are just as likely to be damaged, lost or stolen as a camera, for example.

One barrier is the perception that handbags can’t be insured, but this is simply not true. Owners just need to find the right policy, and the right policy provider.

This brings us to the topic of whether you should insure your handbag?

At KoverNow we are fans of Thaler’s and Sunstein’s ideas on insurance utility (NUDGE). The authors discuss their views when insurance is sensible – and when not – in a chapter with the subtitle “Don’t Sweat the Small Stuff”, arguing that you should get protection if rare but significant events lead to financial distress or ruin. So yes please do insure your house against fire, insuring against your coffee machine or microwave dying probably not such a good idea. What constitutes a large loss for you personally is of course very subjective.

At KoverNow we think you should start pondering on protection if the value of your handbag requires some financial discipline and planning in buying it. Let’s say you spend your monthly salary to bid for that vintage Chanel that you want to show off. That might be the threshold you set for when insurance makes sense, because replacing it will disrupt your cash flow or require you to tap your savings.

If that’s a sensible trigger point for you, the next question is how do I do that and what type of policy do I require? If you already have home contents cover – which in itself may not make sense if you are a tenant – your handbag might be included up to a certain limit. But that only works if your handbag is at home. You need to decide if it’s likely your handbag will get damaged or disappear in your own home. Probably not, right? So what you want is an all-risk cover protecting your handbag wherever you are.

Next, you need to decide on how much you want to insure your handbag for? The starting point is always what you paid for it. If the value of your handbag was static, no problem. In practice it is not. Your handbag will either appreciate (think vintage Chanel) or lose value over time (wear and tear, not a collector’s piece). The result of a static insurance value is that you end up either over- or underinsured.

What does mean? Say you bought your vintage collector’s piece for SGD 5,000 and insured it for this sum. You enjoy showing it off and feel good because you see this model is actually appreciating and you would have to spend SGD 2,000 more now to buy the same model again. If your beloved handbag were to then get destroyed, your insurance provider will pay you SGD 5,000. So far so good, but until all of this is settled, and you actually have the SGD 5,000 in your bank account, the only replacement models you can find  come at a price of SGD7,500. You have been underinsured and carry a financial loss as a consequence. Conversely, if you insured your bag for SGD 5,000 but it drops in value but your premium stays constant, you waste money on insurance premiums that could otherwise be invested or spent on more exciting things than insurance.

At KoverNow we avoid this issue by adjusting the valuation of your handbag automatically. We adjust the premium to the current value so you can forget about wasting premium or being underinsured. And you can track the value of your handbag in your personal ‘Vault’ so there is full transparency.

Because you may also be a bit of a trader at heart and happy to take a profit from your appreciating Chanel bag, our policies are cancellable at any point in time if you don’t need it any more.

As the number of luxury handbag owners increases, more and more will be looking for a way to secure the value of their luxury item and of its contents. After all, they have spent hard-earned money on it, and there is no better way to protect their asset than with a specialised, clever insurance policy.

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