#WealthManagement #Insurance #AssetProtection
Have you ever wondered how rich people make money with insurance on expensive paintings and other assets? 🤔 It may seem like a mystery, but let’s break it down for you in simple terms!
When a wealthy individual purchases a valuable painting, a piece of jewelry, or any other high-priced item, they see it as an investment. These items are not only aesthetically pleasing but also hold significant monetary value. To protect their investment, these individuals often opt for insurance coverage specifically tailored to high-value assets.
How Insurance on Valuables Works
Insurance on valuables like paintings typically covers a range of risks, including theft, damage, and loss. Premiums for this type of insurance can be expensive due to the high value of the items being insured. However, for wealthy individuals, the cost of premiums is a small price to pay for the peace of mind knowing their assets are protected.
Example:
Imagine a wealthy art collector who owns a rare painting worth $1,000,000. To safeguard this valuable asset, they purchase an insurance policy that covers the painting against theft, damage, and other risks. In the unfortunate event that something happens to the painting, the insurance company will compensate the collector for the monetary value of the artwork.
Generating Income from Insurance
Now, you may be wondering how rich people make money from insurance on paintings and other valuables. One way they can do this is by leveraging the insurance coverage to secure loans or lines of credit. Since the valuable asset is insured, lenders are more willing to provide funds using the asset as collateral. This allows wealthy individuals to access capital without having to sell their valuable possessions.
Example:
Using the same scenario of the art collector with the $1,000,000 painting, they could potentially use the insurance policy as collateral to secure a loan for a new investment opportunity. This way, they can continue to grow their wealth without having to liquidate their assets.
In conclusion, insurance on high-value assets like paintings serves as a crucial financial strategy for wealthy individuals. It not only protects their investments but also provides opportunities to generate income and expand their wealth portfolio. Next time you hear about a rich person insuring a painting for millions of dollars, you’ll understand the smart business decision behind it! 💰🎨
Remember, when it comes to insurance and wealth management, knowledge is power. Stay informed and make informed decisions to safeguard your financial future!
They don’t, that’s a movie trope. In real life, the insurance company is going to look carefully at the police report on the theft to make sure it was a real breakin and not some kind of scam.
Very rich people make money on art like this.
Really rich guy commissions artist to make 3 paintings for $30k or whatever. Then he takes that art to an appraiser (this guy is buddy-buddy with all the rich guys) who then values that art at much more than $30k. Let’s say $1mm for all 3.
Now, no one is going to pay $1mm for that art. It’s just not worth it. So instead, really rich guy then donates the art to a museum/charity/school/etc. Now they can deduct $1mm off their taxes because they donated art that was valued at $1mm. Since their marginal tax rate is ~40%, really rich guy now effectively just paid $30k to get a $400k tax deduction.
Mostly it’s a tax dodge. The rich person’s expert gets to value it, so when they donate, they get a large deduction. The higher the value, the larger the deduction.
But why buy it for $1m+? Because they can use the evidence of that sale of a painting by that artist as a basis to raise the value of all his other paintings.
It can also be used in money laundering.
There’s a short [Adam Ruins Everything](https://www.youtube.com/watch?v=Dw5kme5Q_Yo) video about this.
The traditional way of making fraudulent income with art has been to commission someone to make a piece of art for a fee (for example, you pay me $10,000 to paint you a painting). Then, you take this painting to an appraiser, who you bribe into appraising it for an elevated price (you give the appraiser $10,000 and then they appraise the painting at one million dollars).
Now that the painting is “valued” at one million dollars, you can either sell it to someone who is not aware of the scheme (gaining you direct income), or you can donate it to a museum or art gallery and benefit from the resulting tax credit.
You can cut out one portion of the scam by painting the art yourself.
Many people are discussing the normal ways people might launder money via appraisal, but there is another method: laundering of illicitly acquired objects for tax deductions.
In some countries, like Australia, there are laws like the “cultural gifts act”, which allows for someone to donate an object or collection to a museum and recieve a tax deduction equivalent to their appraised value.
This even applies to illicitly acquired objects (so long as they are already in the country and thus not subject to the 1970 unesco conventions / our 1986 implementation of it)
So, for example, you get collections like the Keith and Zara Joseph collection – a collection of 32 antiquities from the near east, ancient Greece, Egypt etc – being imported around 1980, then donated to a museum in 2009 under the cultural gifts act, granting them a tax deduction equivalent to their value, despite having been imported after 1970 when import of cultural goods was ostensibly outlawed.
Well, you could be the Presidents son, and rich people will pay you 1.5mil for your work. Sometimes, when you’re lucky, after you pay, you become appointed to a commission by the President himself.
Some good explanations on how art is appraised at a ridiculous amount.
What also happens to further lock in that price is someone will “buy” it for this crazy price, therefor it has to be worth that amount… right? This is also what happened with NFT’s. Lots of buying and selling between wallets to indicate it’s worth when it was really just the same person all along.
You don’t make money with insurance on paintings. You spend a lot of money to insure your expensive items in case of fire or theft but the truth is that you pay quite a bit to do so.
Perhaps you are alluding to the practice of buying something for X and then insuring it for X+20%. That is primarily based on the possibility of the item appreciating in value and not wanting to have to re-value the artwork every year (or whatever) to try to account for that possible appreciation. In doing so your premiums will be higher but of course if the artwork does actually increase in value you’d still be covered for something like its current value were it destroyed or lost.
However, if the painting is in fact lost, the insurance company isn’t just going to cough up the X+20% – they are still going to do some research to confirm the market value was indeed that before they pay you. Your paying for the extra just covers a _potential_ appreciation.
If you publicly pay $1 million for something, it’s much easier to convince someone else to pay $2 million for that same thing.
It isn’t like they’re making any more Picasso or Monet paintings so the value doesn’t go down.
Here’s a common tax fraud scenario that is perfectly legal. Rich guy doesn’t want to pay his taxes, so he contacts his friend from college who did an arts degree, gets friend to do a painting for him, pays friend a respectable but small sum for his time 10k-ish. Then he contacts another friend from college who is an arts evaluator, he pays friend a nice fee and friend sets the value of the painting as 1 million. Rich guy now donates the painting to a charity auction, rich guy can now write off 1 million dollars of his income as tax free, because he made a “1 million dollar” donation. It’s bullshit and it’s why the FINE art industry as a whole is bullshit and ridiculous
Overvaluing art can be a way to launder money in addition to the tax fraud scheme mentioned.
To add to this, in a lot of countries you pay taxes on money you own. One way to dodge these taxes is to buy art and vintage cars. The value on these items roughly increases with the inflation and it’s value isn’t taxed. They’re also easily sold when you’re in need of money.