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Appreciating and protecting your Family Heirlooms.


IF YOUR INSURANCE has not kept pace with skyrocketing gold and other precious metals prices, your jewelry may be at risk. Gold, silver, and platinum have risen dramatically over the past decade, outpacing many other asset classes. The price of gold and silver has more than quadrupled--and platinum nearly tripled--over the last decade, and most of the appreciation occurred during the last five years.

This multifold increase has been driven by a variety of factors, including the high demand for jewelry in large, emerging-market countries, and greater interest in precious metals as a safe investment during times of economic and political instability. Some specialists in the field say a bubble is forming, one similar to other asset bubbles, but others indicate that gold costs could continue to rise into 2014.

While most investors in precious metals may track prices closely on a daily basis, they are unlikely to consider how much their jewelry, silverware, and other collectibles have appreciated in value. Roger Ponn, a Chicago appraiser who has been in the business for more than four decades, points to the example of a longtime client's jewelry collection that he reappraised. In 2004, the collection was valued at $384,000. Six years later, its value had risen to $682,000. The increase simply was the result of price spikes in precious metals and diamonds over that period.

Ponn cites another example, that of a high net worth family in Wyoming who saw their jewelry collection of more than 400 pieces increase in value by 45% over two years. Its high quality made the value rise more than it would have for most collections.

"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. This is similar to what occurs with gold bullion and gold coins, which appreciate more rapidly than most gold jewelry, simply because they are made of pure gold."

Since a lot of people do not realize just how much their jewelry and precious metal items have appreciated, they have not adjusted their insurance coverage, creating a growing gap. A heavy gold necklace or an heirloom silverware collection acquired years ago may be insured for only a minor fraction of the cost to replace it at today's prices.

"We have seen clients underinsured across all categories of valuable articles, including jewelry," explains Gerald Escobar, president of Asset Archives, a global appraisal firm based in Atlanta, Ga. "Historically, clients who do not proactively manage their valuable articles can be underinsured by up to 40 to 60%."

The problem gets worse when consumers fail to get a valuables insurance policy, also known as "scheduling" items at specific values. Nearly half fail to do so, according to one study. An insurance organization survey of those owning a valuables collection, such as gold jewelry, fine art, or antiques, found that 47% did not have special insurance coverage for their collectibles. These consumers risk being significantly underinsured because homeowners' policies limit the amount the insurance company will pay for jewelry, money (including gold coins), silverware, and other collectible items.

For instance, standard industry policies typically have a $1,500 limit on jewelry, and a $200 one for gold coins and other forms of money. Superior insurance policies have higher ceilings, such as $10,000 for jewelry, but affluent consumers are likely to have collections worth far more than that.

Affluent consumers should consult with their agents about supplementing their homeowners' policies with special valuables coverage. If they already have it, they must make sure that the amounts reflect the cost of replacing their valuables at today's prices.

Here are three steps that can be taken to protect jewelry and other precious metal items:

Update your inventory. A current inventory not only is critical when losses occur, or when a major move is planned, it is imperative if it has been several years since your gold necklaces, watches, and other precious metal items have been appraised.

Photograph or video each item. An agent or risk consultant may suggest that you scan photographs of all valuables, lake new digital photographs, or use a camcorder to videotape the collection. It is a good idea to keep digital and physical records of your valuables, both in a bank safety deposit box and at home. In the event of a mishap, an image inventory helps you remember what was lost, and assists you in obtaining a quick and accurate claim settlement.

Also, estimate current values and have exceptional items appraised. While purchase receipts and a rough idea of appreciation might suffice for many items, your agent may suggest using an independent appraiser for high-value ones. A good appraiser will ensure that your valuables receive the documentation they need to satisfy insurance requirements for determining replacement value should they become damaged, lost, or stolen.

Fast, cheap, and easy appraisals do not work. For instance, this description of a wedding ring--"2.15-carat diamond in a yellow gold setting"--is inadequate for assessing retail or market value, and determining how much it would cost to replace the ring. Such a description can be interpreted in many ways, few of which would benefit the owner. The description should be thorough--including its history of ownership--and address a number of questions: How old is the ring? Is the diamond a fiat cut? Of so, it is worth more.) Is it yellow or white gold; antique, pre-World War II, or modern? How much does it weigh? Did you inherit it? Was it part of a famous estate that adds to its value? Where the ring purchased--at an auction house retail shop? How is its replacement value being determined?


"This last question is difficult to answer, and can be interpreted in many ways," says Ponn. "Keep in mind that, if you purchased the wedding ring at Harry Winston's in New York, but you live in Lincoln, Neb., the ring's replacement value should be determined by the price paid at Harry Winston's, not what a 2.15-carat diamond ring may cost in Lincoln, Neb."

Review and adjust your existing policy. Compare the values in your updated inventory with the coverage limits in your existing homeowners and valuables policies. The cost of increased coverage on a valuables policy generally is a small fraction of the value of the jewelry. Annual rates typically are one dollar to two dollars per $100 in value, depending on where the items are insured. If you have a piece of jewelry valued at more than $5,000, you strongly should consider scheduled as opposed to unscheduled coverage.

Make sure all valuable items are covered. Many affluent consumers might schedule specific items worth several thousand dollars, but neglect many less expensive pieces. In total, these often exceed the limits in the homeowners' policy, leaving them underinsured if the entire collection is stolen. To make the process of insuring easier, some companies allow groups of similar items, such as jewelry or art collections, to be covered on a "blanket" basis. With this approach, you set a coverage amount for the entire collection, and do not need to estimate the value of each item. Exceptional ones, however, should be scheduled individually, since blanket coverage often will not pay more than a certain amount per item in the collection. For instance, the limit for each item might be $10,030.

Use safety deposit boxes to manage cost. Many people do not realize that it can be five to six times less expensive to insure jewelry stored in a bank than at home. If you own items that you wear infrequently, keep them at the bank. You still can take them out; simply notify your insurance agent or company when you do. Insurers normally place some limits on how frequently the valuable items can be removed from a bank safety deposit box.

Repeat steps one and two as part of an annual insurance review. The best and easiest way to keep your valuables--as well as your family's home and other substantial assets--well protected is to partner with your agent once a year for a review of your insurance needs. The review would include any significant purchases or sales made during the year that should be addressed in your valuables coverage. If appraisals for exceptional items are three to five years old, your agent may advise you to have them updated. Some insurance companies require recent appraisals prior to insuring valuables, particularly if jewelry exceeds $100,000 in value, or a piece of artwork is worth more than $250,000.

Not many companies offer valuables insurance policies geared specifically to affluent consumers, who often purchase more jewelry and other types of valuables than the average consumer. These specially designed policies offer several advantages over the industry standard, including protection against market value appreciation. Top quality policies will pay market value up to 50% more than the scheduled amount to replace an item. While this benefit acts as a buffer against temporary price increases, it should not cause complacency about long-term appreciation. As the rise in the price of gold illustrates, the buffer can be exceeded over the course of just a few years.

Remember, too, that there are some companies that offer specialized services to prevent loss. For instance, specialists are brought in to identify the specific types of need for security systems and in-ground vaults. They may offer access to screening services to prevent the hiring of household staff who have a record of theft, and may be able to assist in the evacuation of precious items from homes caught in the path of a hurricane. The affluent consumer, who often is an avid collector, appreciates the prevention of loss to the original piece much more than being reimbursed to replace it.

John Paolini is senior vice president and chief operating officer for ACE Private Risk Services, Madison, N.J.
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Title Annotation:Life in America
Author:Paolini, John
Publication:USA Today (Magazine)
Geographic Code:1USA
Date:May 1, 2011
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