So here is some advice for you that I hope will help to ensure full protection of your most precious items.
Note – some of the amounts, definitions and terms relate to the New Zealand insurance environment and may not apply in other countries.
The Insurance Valuation
The most fundamental of all questions posed by clients are the ones asking why they should have their jewellery documented and valued in the first place.
There are three basic reasons:
- In order to be fully insured, your jewellery items may need to be listed separately on your Contents Insurance Policy – valuations are usually needed to do this.
- At claim time the valuations provide proof you had the item or items, and evidence of their value. Without them you may end up with an unfair settlement, and no way of proving it.
- The valuation reports will increase your chances of successful recovery by the Police.
It is important to realise that not all insurance valuations are created equal. An effective insurance valuation is a document that contains a good colour photo, a detailed enough description to allow a current value to be calculated without re-examination of your items, and a value or values for each that represent the amount the item should be covered for under the terms of the Policy. Photos alone are not enough to accurately establish the value of your jewellery in the case of burglary or loss.
There are two ways your jewellery may be covered by your insurance policy, which is why many valuations in New Zealand list two insurance values.
- Replacement New Value – which is the amount necessary for you to purchase a brand new item of equivalent type and quality.
- Indemnity Value – more recently referred to by insurance companies as “market value”, “present day value” and “current value”. This is the amount necessary to purchase an item of similar quality age and condition – ie the second-hand retail value.
Like most Independent Jewellery Valuers, I am sometimes asked by retailers to prepare a valuation for insurance for items of stock yet to be sold. This is an unethical practice as Insurance valuations should not be used to sell jewellery. They are misleading when used in a sales situation because they usually do not represent the amount similar items are actually selling for. Instead, the values are specifically calculated to ensure that you the owner are adequately covered. Because the values will usually be the limit of your Insurance Companies liability, they will tend to be on the high side. If the item for sale is second-hand, the situation is even more misleading when the seller is using the replacement new value to advertise the “worth” of the item.
One of the hardest concepts consumers have understanding is that a single item of jewellery can have many different values applied, depending on the purpose and function of the valuation. Here are some of the more usual purposes, each returning a different value.
A Market Valuation is the one to ask for if you want to know whether the price of an item is fair. It should report the most common price similar quality, age and condition items are actually selling for, in the market they are most commonly sold. As few sales occur between private individuals, retail stores or internet sites that sell that age and type of jewellery form the most common market for most jewellery.
A Cash Realization Valuation should give you an idea of what your net return would be when selling the item by the most appropriate means available, and allowing a reasonable time period to effect a sale. This valuation is often used as the basis for estate division.
A Replication Valuation tells you what it would cost for an exact duplicate of the item to be made. Except for one-of-a-kind items this value is always higher than Replacement New Value. Many jewellers and jewellery owners mistakenly believe insurance companies should pay for replication, whereas most contents policies only allow for replacement with an equivalent quality item
The Jewellery Valuer
To receive an effective valuation it needs to be prepared by an effective jewellery valuer. Ideally the valuer should not be the seller, or have any other financial interest in the items. If the seller does provide a valuation it must disclose that they sold it, and the amount you paid for it. An independent jewellery valuer should be able to accurately identify the gems and metals and provide a good description of their dimensions, weights, and quality.
The valuer would ideally be a qualified gemologist and diamond grader but this is not essential as long as they have access to someone who is. Most importantly your jewellery valuer should have a good understanding of the valuation principles, methodologies, and ethics that apply to the valuation of any form of property.
The Insurance Policy
My clients are sometimes curious as to why some items of jewellery are listed separately on their insurance policy. Most policies have pay-out limits for jewellery items that are not listed, typically a figure between $1000 and $3000 for each, but some are as low as $500. There is also usually a total limit for each claim of between $3000 and $20,000 irrespective of the number of unlisted items in the claim. I strongly recommend that even your lower value items should be documented for you to be fully protected.
In the sad event of a claim on your policy being required the Insurance Company will require some proof of ownership, and evidence of the value of the item. Once the claim is accepted, the current value or values will be re-calculated from the item description in your valuation. This is why the description is the most important part of your jewellery valuation. If your cover is for Replacement, you will usually be issued with a voucher to purchase a new item. If your cover is for Indemnity the insurance company usually has the option of replacing as above, or paying you the Indemnity value in cash.
It is a popular misconception by policy holders that the Insurance Company will payout what ever value is stated on the valuation.
When you send your valuation copies in to your broker or insurance company, it represents the amount you want your jewellery covered for, and forms the basis for the premium calculation. By accepting the valuation the insurance company is not promising to pay the valued amount. This is because they are insuring the item, not the valuation. Claims are settled on the value of the item at the time of loss. All of which is why the accuracy and detail of the description in the valuation is so important.
To understand fully what your policy will cover under any given circumstance, it is important to read the fine print of your insurance policy or ask your insurance company. Many policies that offer replacement on your household contents exclude items such as cameras, sports equipment, and jewellery – paying only the second-hand (Indemnity) value. Most companies offer the option of upgrading to a full replacement policy for jewellery.
Paul Nilsson, GemLab Jewellery Valuers,
Auckland, New Zealand. December 2010
Photo credits – All photos are either Loyalty Paid stock images or copyright of Paul Nilsson
Disclaimer – The AIJV blog is authored by a selection of AIJV members and guests specifically to be able present many different viewpoints on a large variety of subjects. The opinons expressed by the authors are not necessarily those of the AIJV.