One of the things that all diamond owners should think about is how to protect their jewellery. Apart from learning how to pick a setting that helps physically protect your diamond from damage and loss, getting insurance for your diamond can provide you with the peace of mind you need to wear your diamond proudly.
Insurance vs Warranty vs Guarantee
First I want to get this point out of the way right off the bat. Having a warranty is not the same as having insurance. A warranty issued by a jeweller generally covers the quality of the item. For example, a 90-day warranty will cover that the quality of the item is as described by the seller during that time so this may cover things like damage through a manufacturing defect.
The problem of warranties is that if your diamond comes with a certificate, then it is accepted industry practice that what is reported in the certificate can be off by up to one or two grades depending on the lab. This means that even if your jeweller warrants that a diamond is a VS1 as stated on a lab report, if your diamond is regarded as a SI1, there is no recourse to the vendor based on a warranty.
A guarantee on the other hand is a promise by the vendor that what was sold is, in substance, what was described. This generally doesn’t include the quality of an item but provides you with the protection that what you received was in fact a natural diamond if described as such in the sale. The problem with guarantees is that even if you were sold an SI1 when you purchased a VS1, it is unlikely that you will have a claim, as what you were substantially sold was a diamond and you received a diamond.
Insurance protects you from loss, damage, or theft depending on your policy. I don’t know about you, but insurance is one of those things that overwhelm me because most of the time I don’t understand how the policy works and what or how I am covered. Even worse is when I have to file a claim, I always worry that I won’t have enough evidence or that the claimed amount is unfair. Today I am going to go through your options of insuring your diamond so that you can decide for yourself whether you are properly protected. I will also be discussing what you can do to minimise your risks of losing your precious engagement ring whether you have an insurance policy or not.
Many people are concerned about bringing their expensive diamond on a trip. If you’re travelling abroad, you’re probably not going to be able to find a travel insurance policy that will sufficiently cover a diamond ring. So when my wife and I travel, we tend to leave our expensive jewellery at home.
If you’re planning an overseas proposal or going on a honeymoon, then these are good reasons why you may want to take a diamond with you. But if you’re thinking about taking a diamond on a trip then perhaps you should reconsider. Here are some of my suggestions.
One thing that is handy is a replica travel ring using a diamond simulant. The setting is the most important part here and it is easier if your real ring is a simple solitaire. For example, a simple 14k white gold setting can be cost effective and will help the ring look more ‘real’. The travel ring can be a gift in it’s own right and I like to think about it almost like a self-made insurance policy.
If you’re planning to propose on a trip, you can always propose with the travel ring. You can also propose with just the ring box and explain that the diamond is safe at home. If you don’t know whether she will be ok with it then the best way to find out is to ask her friends.
Homeowners Insurance and Jewellery Insurance
Now when you’re back at home, there are generally 2 ways you can take out insurance on your diamond ring. You can either get a standalone policy that covers your engagement ring or, for homeowners, you can make sure there is a rider on your existing homeowners contents insurance that covers your diamond ring. Most homeowners’ insurance policies will need you to list your more expensive pieces of jewellery including a fair value for the item. The important thing is to make sure your diamond ring is well documented and is specifically listed.
Generally it will be cheaper to insure your diamond ring as part of your homeowners insurance than to take out specific insurance. However, some homeowners’ insurance policies will simply cover your diamond ring in the case of theft whilst the diamond is at home. You will want to make sure that your coverage for your diamond ring applies whether or not the ring is at home and also to verify whether it applies to damage whether or not it occurs at home.
It is unlikely that your homeowners insurance will cover your diamond ring in the case of accidental loss so if you’re seeking this kind of protection then it may be a good idea to consider a standalone policy. Now regardless of how you insure your diamond ring, you will want to make sure you understand what happens when a claim is made. Depending on the policy, the insurance company will pay you in one of three ways and the terminology can be confusing!
The most common Replacement Cost Value type of insurance typically means that the insurance company will try to replace the item with something of similar kind and quality. Generally they will not consider any depreciation of the item. You should also consider that in most cases, your engagement ring could be replaced by something of similar kind and quality at a much lower cost than what you purchased. Remember that apparently similar diamonds on paper can have significantly different value depending on how it changes hands. Good luck trying to explain to your insurance company that your perfectly cut H&A diamond from BGD can’t be replaced by a generic diamond with the same 4Cs from Blue Nile’s virtual inventory!
The premiums for Replacement Cost Value insurance will also depend on how much you have insured your diamond for. You can expect to pay a higher premium if your replacement value is higher so there is no point in insuring your diamond for an inflated replacement value. This is an important point to note when you go get an appraisal. If you’re looking for an appraisal for insurance purposes, make sure you tell this to your appraiser. One proper use of an appraisal is to know what amount to insure the diamond for so getting an appraisal that doesn’t truly reflect the value of the diamond will mean wasted money in paying higher premiums, it doesn’t mean that the insurance company will give you a higher payout!
Replacement Cost Value insurance is not perfect for diamonds and you’re likely to be disappointed in the outcome. I don’t recommend this kind of insurance but it is better than nothing. One thing that is worth considering is to have the ring insured for the fair value of a diamond ring based on the certificate alone and make sure you’re paying the least amount of premium for the protection you’re receiving.
Another poor type of insurance is based on Actual Cash Value. This type of insurance is risky because it allows the insurance company to determine what your diamond ring is worth. Interestingly, although your premiums will be determined by the replacement value at the time of purchase, the payout will be based on the replacement value at the time of loss (minus depreciation as determined by the insurance company!). I certainly don’t recommend this type of insurance because in addition to the same problems as Replacement Cost Value insurance, you are basically at the mercy of the insurance company when the time comes for a claim.
The third type of insurance is known as Agreed Value. This type of insurance offers the least amount of frustration but it is not perfect and is also rarely issued. What Agreed Value means is that at the time of taking out the policy, an agreed payout is negotiated in case a claim is made. Although this type of insurance is the simplest to understand, the problem comes from when diamond prices are increasing. If you purchased a diamond for $1000 ten years ago and insured it for an agreed payout of $800, that diamond is now worth $2000 but your payout remains at $800. Of course, diamond prices can rise and fall so it is worth understanding more about where diamond prices are going before taking out this type of insurance. If you’re going to go this route, make sure you get an updated appraisal every once in a while so that the insured amount is accurate and that your premiums are fair.
You may think that after reading all this that insurance is never worth it, but it isn’t always. Despite your best efforts, your diamond ring may be accidentally damaged and because of that, a VVS1 may be downgraded to a SI2. The problem with this is that normal wear and tear may not be grounds for an insurance claim (neither is intentional damage or damage resulting from natural deterioration). But there are cases where significant damage resulting in a large cleavage in the diamond has occurred. In such cases, if you have a relatively updated appraisal, and then take it back to the appraiser to note the accidental damage to get a professional opinion on the matter, then it is possible to make a claim under accidental damage.
So you can see that insurance is never an ideal solution that will make you whole in case your diamond ring is lost, damaged, or stolen. What it does give you is peace of mind that you are partially protected if something bad does happen. The only people who I will say don’t need insurance at all is if they can happily replace their diamond at their own cost without affecting their day-to-day finances. At the end of the day, having insurance is no excuse for not properly protecting your diamond ring whether it means securing it while you are not wearing it, regularly checking that the prongs are in good condition and that the diamond is secure in its setting, and generally exercising good sense when deciding where and when to wear your diamond ring.