Are Clients’ Valuables Adequately Insured?

What risk is commonly overlooked with the soaring price of gold and other precious metals?

It’s hard to turn on the news today and not hear about the price of gold and other precious metals. Having nearly quintupled in value over the past ten years, according to data from Kitco about the London Gold Fixing in U.S. dollars, gold has everyone wondering if we’re at the peak of a commodity bubble or only halfway through a historic bull market.

Meanwhile, even after a recent correction in early May, the average price of silver remained more than seven times what it was in May 2001, and more than two times what it was just two years ago in May 2009. Platinum prices have also appreciated dramatically. We’re all trying to assess the investment opportunity and risk. But there’s one risk your clients are likely not considering—the risk of their jewelry, silverware, and other items made with precious metals being underinsured.

Many affluent clients don’t realize how much their jewelry and precious metals items have appreciated, so they haven’t adjusted their insurance coverage to reflect the higher values. Roger Ponn, a well-known Chicago appraiser, recently examined a jewelry collection of more than 400 pieces that increased in value by 45% in just two years.   

“Quite a few of their handmade pieces were 22-and 24-karat gold, with 24-karat, of course, being pure gold,” explains Ponn. “Higher karat content means faster price appreciation, when precious metal prices rise.”

Similarly, Gerald Escobar, principal of Asset Archives, a global appraisal firm based in Atlanta, Georgia frequently sees clients who are underinsured across all categories of valuable articles, including jewelry.

“Historically, clients who do not proactively manage their valuable articles can be underinsured by up to 40% to 60%,” says Escobar.

For affluent families, who may have jewelry and silver collections worth hundreds of thousands of dollars, the issue of underinsurance is no small matter. To prevent significant loss, they should take two steps.

1.  List and assess the current value of each item in the jewelry and silverware collections.

While purchase receipts and a rough idea of appreciation might suffice for many items, consider using an independent appraiser for high-value items. To find an appraiser, ask an independent insurance agent for a recommendation or look on the Web site of the Appraisers Association of America.

2. Review and adjust your existing insurance coverage.

For items that have been scheduled on a valuables policy, adjust the values on the policy to match the values in the updated inventory. For items that have not been scheduled, make sure their aggregate value does not exceed the coverage limit in the homeowners policy, which can be $1,000 or less on a standard policy and perhaps $10,000 on a policy geared to affluent households. If the aggregate value exceeds the limit, consider scheduling the items as a group on a valuables policy using what is called ‘blanket coverage.’ It sets a coverage amount for the entire collection instead of requiring the value of each item.

To minimize the future risk of underinsurance due to price appreciation, look for valuables policies from carriers that specialize in serving affluent clients. They will pay market value up to 50% more than the scheduled amount to replace an item. This benefit acts as a buffer against temporary price increases, but it should not cause complacency about long-term appreciation. As the rapid rise in the prices of gold and silver illustrates, the 50% buffer can be exceeded in just a few years.

To learn more about this subject, please read or download ACE’s white paper, “Does Your Valuables Coverage Meet the Gold Standard?

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