Financial Planning > Behavioral Finance

Jewelry: A Surprisingly Large, and Vulnerable, Pocket of Client Wealth

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Even if your clients aren’t “Keeping Up with the Kardashians” on reality TV, they probably have heard of the Paris robbery last October in which a $4 million 20-carat diamond ring and 12 other expensive jewelry items were taken at gunpoint from Kim Kardashian.

The theft attracted attention because of the media’s fascination with anything Kardashian and because of the value of the jewelry. Missing in all the coverage, however, were two questions that remain unanswered: For how much was the jewelry insured and will the loss be covered?

Curiously, many financial advisors’ affluent clients would be stumped if their jewelry were stolen or lost and they were asked the same questions. To be sure, most advisory clients don’t share the same personal wealth as Kardashian, but with the increasing popularity of fine jewelry and the strong price appreciation of gold and precious gemstones over the past decade, many clients would suffer significant financial harm — not to mention emotional pain — if their jewelry were stolen or lost..)

(See 3 Insurance Policies for Ultra HNW Clients)

“The financial cost is probably greater than they realize because few people insure their jewelry,” said Janece White, a trusted colleague and jewelry expert who holds the Accredited Jewelry Professional (AJP) designation from the Gemological Institute of America (GIA) and serves as North American vice president of underwriting and jewelry specialist at Chubb Personal Risk Services. The skyrocketing value of fine jewelry was discussed in my November Investment Advisor column, “Fine Jewelry Appreciates in Value — and Risk.”

Sizeable Jewelry Assets

White noted that today’s gold and gemstone prices can easily result in an affluent couple having jewelry worth $100,000 or more and perhaps double what they paid — without them being aware of its current value or what would happen if their items were lost or stolen.

Despite jewelry’s often significant, if not widely recognized, contribution to a client’s total wealth, it is an asset class that many advisors often do not consider relevant. Yet these same advisors are missing an opportunity to provide added value and attract referrals by being a source of information and guidance about jewelry and adequate protection.

Here’s some background: Although 95% of jewelry sold is for women, 40% of all jewelry purchases are made by men. Traditionally, big jewelry spenders have been urbanites, adults age 55-64 years old and high-income earners, according to Idex Magazine. Today, millennials are spending more on fine jewelry than any other age group — an estimated 28% more than the average household, often purchasing their items online, according to a 2015 report by Edahn Golan Diamond Research & Data.

Many purchases are being made. In 2015, global diamond jewelry demand reached $79 billion. The bridal market remains a centerpiece of the U.S. diamond jewelry business, accounting for 28% of total demand value in 2015, reported De Beers in The Diamond Insight Report last year. That’s not surprising since the average diamond engagement ring costs about $6,000, according to The Knot’s 2015 Jewelry and Engagement Study.

While homeowners’ insurance policies typically cover jewelry, most provide coverage only if an item is stolen, not if it is lost or misplaced. Also, maximum coverage limits are common with most insurers’ policies, so if a stolen item is worth more than it’s covered for, it could not be replaced with something similar.

Which Valuable Articles Are Covered?

The most comprehensive way to insure fine jewelry is with a valuable articles policy or endorsement that provides “all-risk” coverage for most causes of loss, with no deductible. That means the policy will cover the replacement of fine items if they are stolen, lost or misplaced, and even replace a pair of earrings, for example, if just one has been lost. Some top-quality policies also pay a replacement cost of up to 150% of the initial insured amount if the item has increased in value.

While clients may benefit from having a high-quality current appraisal for their fine jewelry, some insurance companies don’t require one in many cases. Unless an individual piece is valued at more than $100,000, some better valuable articles policies typically just need a good description of the piece, a photograph of the item and its estimated value. Such policies also provide automatic coverage for newly acquired pieces for a period of time, so owners don’t have to worry about getting each new piece covered by the policy the day they buy it.

If your clients travel outside the U.S. and take their jewelry with them, White says they should consider other factors.

“They may want worldwide coverage, and they should be aware of the maximum amount of coverage they have while traveling,” she said. “Also, some policies place restrictions with regard to security required while traveling. They may require that jewelry be kept in a secure hotel safe, not the room safe.”

How Wealth Advisors Can Help

Regardless of a valuable-articles policy’s specific terms, your clients should always adhere to these jewelry safety rules while at home or away:

  • When traveling, use the hotel vault, not the room safe, when not wearing the jewelry.

  • Don’t pack jewelry in checked luggage.

  • Don’t wear valuable jewelry in less secure areas, such as the pool or beach.

  • At home, don’t keep the most valuable pieces in a bedroom. Install a secure home safe with appropriate fire and theft ratings for jewelry, or keep valuable items in a bank vault.

With all the demands on advisors’ time, becoming a jewelry expert may not rank high on the priority list. But appreciating and helping protect the financial and sentimental significance of a client’s jewelry investments requires little time and can be as priceless as jewelry itself in demonstrating one’s value.

As always, should you have any comments or questions regarding this article, feel free to send an email to [email protected].

See these other recent columns by Fran O’Brien:

Protecting Clients From the Financial Dangers of the Sharing Economy

3 Emerging Risks Your Clients Aren’t Prepared for in 2017