Insuring Your Jewelry

The standard "unscheduled" policy
Most standard homeowner policies have a $1,000 cap on unscheduled items in each of these four categories: jewelry, furs, guns and silver (e.g., $1,000 limit on jewelry, $1,000 on furs, and so on). Some companies offer an endorsement to raise this unscheduled cap to $5,000 or $10,000.

The typical homeowner policy offers coverage based on what the insurance industry calls a "named perils" basis. This means that the jewelry is secured only against the hazards that are listed in the homeowners policy (e.g., fire, theft, flood, windstorm and hail). It does not cover some of the most common risks with jewelry: certain types of damage, loss of a stone from the mounting, or mysterious disappearance (for example, you can't account for a theft -- the jewelry is just missing, and may have fallen off while being worn).

Scheduling your jewelry
An important option for jewelry owners is scheduled coverage on their jewelry - meaning items are individually listed, or scheduled, with a specific dollar value for each. Many individuals only schedule jewelry when they have exceeded the limits of their regular coverage. However, insurance agents recommend scheduling jewelry from first dollar, to provide coverage against perils that are not covered under the basic policy (see above). The deductible may also be eliminated on scheduled items.

Another advantage with scheduled coverage is for newly acquired items. It can be difficult to contact your insurer with the receipt or appraisal immediately after the purchase. If your policy includes scheduled jewelry, in many cases your insurer will cover new acquisitions for up to 30 days from date of purchase, even if not yet scheduled. However, each insurance company handles things a little differently, so take care to familiarize yourself with your particular policy.

Typical loss settlement provisions
Of course, the settlement you receive depends on the type of coverage you bought, so the wise consumer presses their agent for details and reads the loss settlement provision in the policy. However, the typical policy states the insurer is obligated for no more than the least of four measures of loss (minus any applicable deductible):

1.The actual cash value (ACV). This is usually the appraised value done on a replacement cost basis. If based on the original purchase price, the clause allows a reduction in ACV for depreciation, but that deduction is rarely imposed in the case of jewelry, and with diamonds a case is sometimes made for appreciation.

2.The cost of restoring damaged property to its condition just prior to the loss. If the item is damaged, most consumers will be satisfied with this option, whereby the insurer pays to repair the item.

3.The limit of liability for the property; the scheduled value. In many cases, this is the same as the ACV, in that customers schedule the item based on the purchase price or current appraisal.

4.Replacement with property of similar kind and quality. The insurer procures a replacement item for the policyholder, usually with a restriction that the purchase be made from a jeweler of their choice.

Misconceptions about settlements
Few consumers read their insurance policies, but even those who do so can easily misinterpret things, and most insurance agents don't explain how the system works. Therefore consumers are left with expectations that don't match the reality of their policies, and only learn the disappointing and frustrating truth when they submit a claim based on a loss. Reality is a hard teacher.

What actually prompted me to write this document is all the disagreements I have seen as to cash settlement amounts. When a total loss does occur, most policyholders think they will receive a check for the full scheduled value. Even those who have read their policy as to the "least costly of the four measures of loss," tend to assume that Option 1 (ACV) and Option 4 (replacement) are roughly equal to Option 3 (scheduled amount).

In actual fact, the option that is usually the cheapest and therefore used most often is number 4, replacement cost. That is because the insurer is typically able to purchase a replacement at closer to wholesale price than to retail. If you then elect a cash payout, they will only pay you what THEY would have paid for the replacement. This is usually well below what YOU would have paid for a replacement, and well below the ACV or scheduled value.

Policyholders caught in this dilemma often argue that they have been paying a premium based on the scheduled value, so they should receive a check for that full amount. Insurance companies argue that the actuarial process used to set premiums takes into account the fact that many claims are settled well below the limit of liability. And if they were to settle more claims based on ACV or at full limit of liability, premiums would climb. They also contend that appraisals are too often inflated and state an amount greater than what was paid for an item. They are also saying, in effect, you can't know the settlement value of an item until you have a loss.

Minimizing settlement problems

1.Research whether you would do better to take a cash payout and replace the item yourself with a pre-owned piece. Contact a reputable estate jeweler (one which specializes in pre-owned jewelry and gems, and sells for substantially less than new jewelry prices), and see if you can replace it for less than the cash-out price. Example: You scheduled a ring for $1,000, and they offer you either a replacement or $600 cash. An estate jeweler may sell you a comparable item for $500, leaving you ahead by $100 cash.

2.Negotiate with the adjuster for a higher cash settlement, especially if the item lost was an antique or estate purchase. It is harder to find a truly comparable replacement for an antique piece, therefore they have less justification to pay you less than the scheduled value. And your case for full payout is even stronger if you find a similar item at an estate jeweler, priced at or above the insured value.

3.Confirm that any replacement you accept was at least equal in quality and value to the item lost, by means of an independent appraisal (typical cost $25-50). This is particularly important in the case of large diamonds or other high-end jewelry and gems, and must include an assessment of cut (go to How to Buy a Diamond for an explanation of how to determine if stones are truly comparable).

Setting the scheduled value
First, we recommend you do not schedule any item valued at $50 or less.

Beyond that, the simple answer is that the scheduled value should match the appraised value. If planning to schedule an item, an appraisal should be part of the purchase process, and for diamonds weighing 1/4 carat or more, we recommend you confirm the grade and value of your purchase with an independent appraiser.

One would expect that the "replacement cost appraisal" for new jewelry (not estate or pre-owned), would be for the amount just paid to purchase it. However, many jewelers, to support a claim that they have sold to you at a big discount, will want to issue an appraisal for an amount that is significantly higher than what you just paid. Insist on an appraisal for the purchase amount, to avoid paying higher insurance premiums with no assurance that you will recover the higher scheduled value.

Antique and Pre-Owned Jewelry
There is one category of purchase that takes exception to the rule of "appraise it for what you paid." That is antique and pre-owned jewelry which would be hard to replace with a pre-owned piece. If you insure it at estate prices, which typically are half the price of new, but are unable to replace it with an estate piece, youu may find yourselfunderinsured. That is why Wooden Skate typically issues appraisals at 1.5 times the sales price (e.g., if a pre-owned item is purchased for $1000, the appraisal is for $1500). Another cautionary point applies to estate diamonds cut to earlier standards, such as the "Old European Cut." Many insurers will attempt to apply a formula devaluation to such diamonds. In truth, many Old European cut diamonds were well-made and offer such fiery sparkle that their value is equal to or greater than a modern round brilliant of similar size, color and clarity. Again, seek the advice of a professional estate jeweler to protect your claim.

How often to upgrade scheduled values
Unless there is a strong inflationary market for the type of gemstone or precious metal you are insuring, most appraisals will be satisfactory for a period of approximately five years. Wooden Skate will update an appraisal previously issued by us for one-half of the prevailing appraisal fee.

The bottom line
What can you expect to pay? Rates on jewelry can be as low as 40 cents per hundred dollars (limit of liability) for jewelry kept in bank vaults, to several dollars per hundred of liablity for high risk situations. Michigan premiums run about $1.10 to $1.50 per $100.

Shop around for the best premiums -- different companies charge greatly different rates for similar coverage, and may also charge very different rates from year to year for the same coverage, based on loss experience. So if you are scheduling a high value of jewelry, it can be worthwhile to scrutinize annual changes.

Read your policy and be sure you understand your coverage and settlement terms. Remember to schedule your new purchases, and for the proper amounts. Don't be afraid to negotiate with the adjuster, and don't hesitate to seek the advice of a trustworthy jeweler to assist you with your claims and replacements.