What You Need To Know About Whiskey Insurance
An insurance broker offers his advice on how best to secure a valuable whisk(e)y, collection, or even if it’s worth anything in the first place.
All photos by Maggie Kimberl.
In Kentucky, where I live, there are whiskey collections that are worth more than most people’s retirement accounts or their houses, and outside of Kentucky there are extensive collections of Scotch, Japanese whisky, Canadian whisky, Irish whiskey and everything in between. The concept of insurance for such collections isn’t as unusual as one might think. After all, Lloyds of London once insured Betty Grable’s legs for $1 million, and if you had a sizable collection of rare whiskey wouldn’t you want to protect it?
When should you start thinking about whiskey insurance?
“When I realized I had a vehicle in my closet,” says Justins’ House of Bourbon proprietor Justin Sloan of his decision to start looking into whiskey insurance. “You insure everything else and you have to be careful about who you show it to. Just like a vehicle you want to make sure you’re covered.”
While Sloan had a large network of friends to help him get started, sometimes finding someone to insure a whiskey collection can be tricky. It will typically be a rider on an existing homeowners policy, but different insurance companies have different caps on what they will insure and under what circumstances.
“Robert’s Insurance down in Richmond [Kentucky]—they are the kind of agents who will shop around and find the best group,” says Sloan. “There are a lot of groups that will insure whiskey, but those policies have limits. You have to find the right policy for the amount you’re trying to insure. The Roberts guys shopped around for me.”
For businesses with a lot of whiskey, the process is a whole lot easier. “At the business it’s considered inventory and it’s a lot easier to get insurance,” says Sloan. “The limit is also a lot higher. It’s just like any other business whether it be a car dealership or what have you. That’s what you’re selling and the limits are going to be a lot higher.”
“It’s up to the collector when they want to transfer the financial risk of their collection to an insurer,” says UK-based Insurance Broker Graeme Dempster with Bruce Stevenson. “Depending on the values at risk it would be prudent to insure bottles from the immediate moment of purchase. That way, should something happen to them from the point of purchase to their final resting location, cover will apply. It is whilst in transit or being moved, that loss or damage is most likely to occur. There is no minimum value to insure in respect of the policy we can provide in the UK. We usually find that collectors decide to contact us once their household insurance cannot or won’t accommodate the insurance of their collection. If it is a commercial entity and again depending on values at risk, it would be best to insure immediately. Management can therefore demonstrate that they have been diligent in arranging protection for their asset.”
Sloan suggests, “I would recommend evaluating what you think your collection is worth and talk to your agent and see if it’s going to be cost effective for you to do it and not break the bank.“ He adds, “Is a $5-10,000 collection worth insuring? Maybe not. Is a $90,000 collection worth insuring? Definitely. You just have to see if it’s cost effective for you.”
The number of insured whiskey collections is on the rise
As collecting becomes more popular, collections continue to grow in size and in value. Twenty years ago the concept of whiskey collections was a novelty. Think about all those people who collected Beanie Babies! These days whiskey is seen as having greater stability in its value than such fads of the past.
“I can’t speak for the US but in the UK, the desire to insure private whisky collections is on the increase,” says Dempster. “This is due to a running market where a casual collector now realizes that their collection has some meaningful value to it and therefore they wish to protect it. In addition, as the market to invest in whisky has exploded, private collectors are snatching up the rare bottles which attract significant values in the hundreds of thousands and as such they want to insure them.”
Keeping those collections safe is of the utmost importance. “For the policies we arrange in the UK there is a minimum security requirement which is that all entry/exit doors to the property at which the collection is housed are secured by 5 lever mortice deadlocks, and that all accessible windows have key operated window locks,” Dempster says. “If the whisky is being moved, it must be packed properly to withstand the method of transit being used. To reiterate: the Insured has a duty to take all reasonable steps to protect the collection from loss or damage.”
There’s a lot of work involved in insuring a whisk(e)y collection
Where do you start when it comes to evaluating a collection? It’s important to have a ballpark idea of what the bottles in the collection are worth, not to mention what is actually in the collection. It can be a challenge to keep up with inventory.
“Document everything and keep receipts of what you buy,” says Sloan. “Obviously, replacement value should be more, but it will give you a bottom line place to start as well as a record of when you bought it. Use a spreadsheet or an app to keep track of it all. Just make sure you stay on top of what your collection is worth. Every 6 months I send an updated inventory to my insurance guy. Probably about once a year you’ll want it to get reevaluated. Just make sure you stay on top of it.”
While collecting bottles from third parties is legal now in Kentucky, caution is key when it comes to rare bottles. A reputable, licensed broker or bottle shop is much less risky than an auction when it comes to obtaining legitimate bottles instead of forgeries. As long as verifiable documentation accompanies the purchase, it’s possible to insure rare bottles as well as newer ones.
“The onus is on the Insured to prove the authenticity, provenance and value of a bottle or collection of whisky in the event of loss or damage,” says Dempster. “Whilst those that are of a greater value aren’t more difficult to insure, more information is often required in relation to their storage and protection. Again there is onus on the Insured to ensure that the collection is properly looked after and that reasonable care has been taken. Insurers want to know who the Insured is, where the collection is stored, what security and fire protection are in place, who has access to the collection and who has provided the valuation.”
Is it more difficult to insure third party whisk(e)y?
“Whether you obtain whisky direct from a retailer, distillery, or dealer or whether you obtain the whisky from a private seller or through an auction house, the insurance is the same,” continues Dempster. “Collectors should always keep purchase receipts and photograph their collection as part of good practice and inventory recording. Therefore in the event of loss or damage the Insured can evidence their ownership of the bottle(s) and their value and the claim can be settled swiftly. Values should be checked and updated regularly (certainly annually at the moment) and if necessary the services of a professional valuer with a credible CV employed. However, any purchaser should always do their homework before they buy. There are many forgeries out there and to part with a lot of money to buy something that turns out to be a fake would be an expensive mistake. It is also not something you can insure against.”
Whiskey insurance extends beyond personal collections
It stands to reason that distilleries, bars, and retail shops also have expensive whiskey collections to insure. Think about a major distillery with 30,000 barrels in each rickhouse and more than a dozen rickhouses. Now think about lightning striking one of those warehouses and all the whiskey inside being destroyed - that’s a huge amount of money literally going up in flames. There are various kinds of insurance to cover each of these different scenarios. As Justin Sloan pointed out, in a retail store a whiskey collection is insured as salable inventory, but it’s a little different in a pub or in a distillery.
“We insure whisky collections held in commercial locations such as bonded warehouses or other storage facilities and if a pub or bar has a collection such as that—a collection—and not used for drinking, then yes, it can be insured,” says Dempster. “However, if the whisky in stock at a bar or pub is used for customers’ consumption, this is not something that can be insured under a private whisky collection policy. That would form part of the business's insurance and of course, once a bottle of whisky is opened under a collections policy, all cover ceases.”
In a maturation warehouse situation, things are a little more complicated. Rather than being merchandise that is sitting around waiting to ship out, whiskey in barrels is merchandise that has to age for a period of time before it can be bottled and sold, and with most whiskey there are a lot of complicated variables.
Dempster explains, “This is an industry which poses its own unique challenges due to the fact that whisky, after it has been distilled, must mature for longer periods—sometimes in excess of fifteen years. In terms of the insurance impact of this lengthy distillation and maturation process, it is both impractical and costly to insure for this entire period. In addition to standard material damage cover available under a commercial insurance contract, it is advisable to insure the whisky on a maturation basis that will cover both market value at the time of a potential loss and the loss of future matured value (sales value in bottle).”
He continues, “Put simply, if a warehouse stocked with whisky, which is set to mature for ten years, was destroyed by fire at the five-year point, the fire risk insurance policy would pay the five-year-old-whisky market value as at the date of the fire. The maturation wording would then pay the difference between that amount and the value of its intended selling price had it matured as a ten-year-old whisky. Thereby between the two sections, the distiller would be fully indemnified in respect of the loss of whisky in-store.”
Should you Insure your whiskey collection?
As Sloan pointed out, insuring a personal collection may not always be cost effective. If you have a few bottles you really love it may be worthwhile to insure just those bottles, but keep in mind if your teenager cracks them open while you are out of town your insurance likely isn’t going to cover that. You’re better off securing your collection in a fire safe if you are concerned about something happening to it until you get to a certain point in collecting, and only you can determine where that point will be.
Keep these bits of advice in mind in determining what’s right for your budget and needs. And how long you want to wait before cracking open those prized bottles.