As part of the ongoing Spending Reduction Series, today I present: Engagement Ring Insurance. Back when Mrs. Thriftyskate and I were dating we occasionally talked about money. As things got more serious we talked about large, upcoming purchases, mainly the engagement ring and wedding. Although we were thrifty, we still wanted a few of the luxuries in life. This led us to purchasing an engagement ring which had enough value to make it worth insuring.
After purchasing the engagement ring I proudly protected the new asset with an insurance policy. The jeweler I purchased the ring from strongly endorsed a particular company, without any type of “affiliate” relationship, so I felt confident choosing their recommendation. After all, why shouldn’t I trust a jeweler to know how to insure jewelry?
And so we lived happily with the ring, with our wedding and with the yearly insurance premiums. Then this year something felt different when I received the annual renewal notice, This seems awfully expensive. I did some digging and found that the premiums had been going up a predictable $6 every year for several years. I was on the auto-renewal plan and had never noticed these creeping premiums!
After the recent insurance changes to my car, I thought, why not ask my life-auto-home insurer about a jewelry policy? A few minutes phone call later and I had myself a quote.
There was a catch though. I needed to get a re-appraisal since they required one within the past 2 years, and it had been longer since the original appraisal.
Not a problem. A 20 minute trip back to the friendly local jewelry store I went to several years earlier for the original appraisal and I had an updated appraisal for only $15 – a bargain since the original cost $150!. For those wondering, the appraisal came out almost the same as the original – it was a few hundred dollars lower actually. The store owner politely explained the value fluctuates and it’s nothing to worry about – I wasn’t.
Great, one last phone call back to the insurance company. Their last question, would you like to insure against the appraisal value or the purchase value?
A short side note here for those unfamiliar with jewelry pricing. Jewelry is purchased at retail price. Jewelry, especially diamond jewelry is appraised above retail price. This phenomenon is just difficult enough and not enough of a financial impact to stop the average person from educating themselves. I encourage you to continue reading the vast resources of the internet about this prolific scam. In summary, it’s collusion between the jewelry industry and insurers. You’ll understand the reason in a moment.
The insurance representative was still waiting for my response. I managed to blurt out, what’s the difference? To which I received an obvious response: the policy could insure against retail or appraisal value (low or high value).
As my mind raced to find a logical choice, I continued with questions, If I file a claim how will I be reimbursed?
Turns out they would try to replace the ring as like-in-kind first, and if they couldn’t, they’d give me a check for the insured amount. What I heard though was We’ll replace with retail and if we can’t find the same thing we’ll give you the policy amount. In other words, I would likely be getting a physical ring as a replacement, identical to mine (Mrs. Thriftyskate’s). An important note here: her ring is a common design and would likely be found in a jewelry store.
I took 5 minutes to search for the same ring at Blue Nile based on the characteristics of the ring – using the “4 C’s” as the criteria. The search results confirmed the lack of value appreciation, as evidenced by the almost-identical appraisal. Therefore, the insurance company would go buy, at the same price I paid, a very similar ring using it’s cut, clarity, color and carat… even if I was paying premiums to replace at the higher appraisal amount.
So I must choose retail value for the policy! There would be no point in paying for a policy which would cover a more expensive ring, only to get replaced by a less expensive ring.
There was one last decision to make: Which deductible? Unlike the MiEV, this was not a gray area. There would be no middle ground to potentially repair the ring if lost. If it’s lost it’s lost.
I stared at those deductibles for a good long while without an epiphany. That meant time for a visual. I decided to plot the deductibles versus the annual premium as a percentage of the replacement cost (value minus the deductible).
Here’s an example:
Annual premium: $100
Replacement cost: $10,000 ($10,500 – $10,000)
Premium as a percentage: 1% ($100 / $10,000)
As the deductible increased, the annual premium became less compared to the replacement cost.
Interesting. It appeared as though I should choose the higher deductible since it amounted to a smaller overall cost as compared to the ring value.
What about the break-even time point? At what point in the future should I have chosen a particular deductible if I file a claim?
For that I needed to consider the total cost: the premium plus the deductible. I graphed the costs based on the cost if the ring was lost in a particular year.*
Here’s an example:
Ring lost in year: 10
Annual deductible: $58
Total in annual deductibles paid: $580
Deductible amount: $1,000
Total cost: $1,580 ($580 + $1,000)
By year range, here is what I should choose:
If I file a claim, the deductibles I should have chosen to have the lowest out-of-pocket cost are the following for the years:
Years 1-14, $0
Years 15-18, $100
Years 19-27, $250
Years 28-33, $500
Years 34+, $1000
The graph tells an interesting story. In the short term, I should choose the $0 deductible. But, after a while those premiums really add up. The more time that passes, the higher the deductible I should have chosen. Thus, if I don’t ever expect to file a claim, I should choose the $1000 deductible.
However, I’m a practical guy. Never experiencing theft, devastating damage or otherwise total loss over the next 34+ years, while hopefully not, it might actually happen. I wouldn’t expect it to happen soon, but I also wouldn’t expect it to happen at least 50 years from now.
So what should I do!?!
I want to minimize my costs now and later. Notice in the graph that pretty orange line in the middle in the beginning years, then still in the middle in the later years?
That’s our winner. I don’t know when I will need to file a claim so I’m minimizing my expense exposure now and later by balancing the probability evenly across time. Additionally, I would expect 19-27 years from now Mrs. Thriftyskate and I will be the most active, traveling and generally enjoying our early retirement thus expose to probability that the ring will get lost.
One last gut check, Would I be okay absorbing a $250 loss if I were to lose the ring? Yes.
I want to point out that no amount of insurance could replace the sentimental value of the ring. It has meaning beyond its intrinsic value. That is something insurance cannot protect.
So I happily called back my insurance agent back and signed up for the $250 deductible.
How should you choose a jewelry insurance policy deductible?
Make sure having an insurance policy is appropriate. If the item has significant value, it is probably worth insuring. However, if losing the item wouldn’t cause you too much disappointment then it may not be.
- Determine if retail value or appraisal value is appropriate. If your jewelry is fairly common and you can easily find similar pieces for sale at about the price you paid, go with retail. If not, consider the appraisal value.
- Shop around for quotes. I made the mistake of not doing this and overpaid for years. Don’t forget to ask for quotes at all the different deductibles they offer! Also, if you have multiple policies with your home/auto/apartment/boat/etc insurer they may offer a discount for opening another policy with them.
- Get an appraisal if required by the insurance company. They may require this even if you’re only insuring to the retail value. If you’re getting a re-appraisal, check back with the jeweler who did the original appraisal – they may offer a discount for your repeat business.
- Select a deductible. Do you fear losing the jewelry soon? Plan on keeping the item in a fire-resistant safe, locked away forever? Think about your risk tolerance and if the replacement cost would too high considering the deductible.
There you have it, a Thriftyskate guide to finding, choosing and saving money on engagement ring insurance. Thrifty score: 26/40
*You are correct, I did not factor in the ring’s value fluctuation or effects on the premiums due to inflation. Let’s go out on a limb here and assume wages will keep up with inflation, thus making this a wash for this analysis.