Extra Insurance Can Protect Those Diamonds and Pearls

Posted by on May 28, 2011 | 0 comments

Ask almost anyone about insurance on jewelry and you hear, “Oh, it’s covered by my home insurance policy.”

Not exactly.

True, nearly every home insurance policy in America comes with a provision that pays for stolen jewelry. But that provision is very small. Many policies pay up to $2,500 for a stolen item, regardless of how expensive it may be. Some pay as little as $1,000, and a few provide coverage of up to $5,000.

People often forget about inflation when they think about the value of jewelry. The price they paid sticks in their mind. But almost every year, the cost of that same piece of jewelry rises, so the value of even a few items could be higher than the minimal coverage. The sharp rise in gold and silver prices lately has increased the likelihood that replacing jewelry would cost more than expected.

The standard home insurance policy may cover the full value of jewelry that is destroyed in a fire or an explosion or in the collapse of a house. But not much jewelry is lost in those ways. The real problems are crime and just plain losing things. Theresa Lawless, who oversees jewelry coverage at the Fireman’s Fund Insurance Company near San Francisco, estimates that 85 percent of insurance company payments related to jewelry are for theft and for what the insurers call “mysterious loss.”

All home insurance companies sell extra coverage that will pay to replace prized jewelry or, in some cases, pay the full value of the item in cash. But few people buy the coverage.

Many think they will never need the coverage. And others feel that compiling a list of jewelry — and, often, having to document its value, sometimes with an appraisal — is too much of a bother.

Charlotte Edmonston, managing director for Arthur J. Gallagher & Company, a large insurance broker with headquarters near Chicago, said that middle- and upper-middle-class homeowners are perhaps the most likely to buy special coverage.

“If a guy earning $80,000 or $90,000 buys his wife a pair of earrings for $12,000 and she loses them, it’s a big deal,” Ms. Edmonston said. “So they will most likely buy the insurance. I find my highest-income clients only buy insurance for their most expensive items. They can afford a loss.”

In pure dollar terms, the special coverage often does not seem expensive. Mario Morales, director of corporate underwriting at MetLife Auto & Home insurance, says jewelry insurance typically costs $10 to $15 per $1,000 of coverage. At that rate, insurance on $5,000 worth of jewelry can cost as little as $50 a year; for baubles valued at $100,000, the cost, at the lowest rate, would be $1,000. Not a staggering amount, some might say. But you would pay about the same rate for a much broader policy that covered just about everything that could possibly go wrong with a house.

Moreover, the rates are much higher — $25 per $1,000 and more — in New York and in other big cities where there is lots of jewelry and lots of losses.

Insurers say people often lose sight of the value of jewelry as they add pieces over the years.  Some people buy the special coverage but fail to increase it annually to keep up with inflation. They end up in trouble, only able to collect what their bracelets and rings were worth years earlier.

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