Which appraissal to use?

[Zoologico]

Hi folks,

I bought a diamond engagement ring from an online retailer.

I got the online retailers appraisal and it states X amount.

I got it appraissed locally and it came to X - 1000.

I bought it for X - 2000, so that doesn''t really concern me, plus the appraisal thing is for insurance in my case.

Now the question:

Should I use the X amount (highest) or the X - 1000 (lower) amount for insuring the ring?

I think the answer is the higher one, but is there an instance where I would NOT want to use the higher amount to get it insured?

Thanks.

 

[ame]

A higher premium. I ended up going with the average of all 3 of the replacement values I was given.

 

[denverappraiser]

Miguel,

The answer boils down to how the insurance company will respond in the case of a loss.

Most policies are an agreement to by the company replace the lost piece with another one of ‘like kind and quality’ in the case of a loss. This means that the insurance company will buy you a ring based on the description in your appraisal. They will not pay you the faceThey will, of course, pay the least amount they can for this. The face value of the appraisal will only come into play in a claim situation of this type is if it is below the company’s cost to replace the piece.

The other use for the appraisal is to set the price of the policy. They usually charge a percentage of the appraisal value as your premium.

The result is that a bigger number on the appraisal will increase the price of your premium in direct proportion and will not change their behavior at all in the case of a loss. This sounds to me like you are paying extra money for your premium but are not receiving any value at all in return.

Do you believe that the insurance company could replace it for the price on the smaller appraisal? Is this number more than your cost? If so, is there some reason to believe that the insurance company can’t get at least as good a deal as you did?

Neil Beaty, GG ISA
Independent Appraisals in Denver

 

[reena]

I was wondering about this too, because I just signed up for Chubb insurance (which cuts you a check for the policy amount if you lose your ring). My stone is still being set so I haven't received a final appraisal value yet, but when I asked about this issue the Chubb agent solemnly told me that it is best to insure the ring for the (presumably higher) appraisal price, rather than the purchase price.

My hunch is that she only said this so that I would get stuck paying a higher premium. It seems smarter to me to insure for the purchase price with this kind of policy--i.e., for the amount of money it would take me to go out and replace the ring if I lost it (ignoring inflation for a moment). I'm a little confused as to why I should do anything else?

 

[Zoologico]

Thanks for the prompt and thorough response.

I'll see what premium difference these prices represent, but I will likely go with the lower priced one.

The only thing that concerns me is the part where they replace it with something of "like kind and quality."

I spent so much time and effort looking for this stone that fit my criteria for quality/price. Anyways, I can always push back on them, if I am not happy with something. I just hope I don't ever have to use it.

Take care and thanks again.

 

[denverappraiser]

Miguel,

Your concern is valid and it's one of the reasons to get an independent appraisal even if the seller provided you with documentation that the insurance company will accept (which is almost anything). The reason that the company asked you to supply them an appraisal is so that they can properly define the subject property. This means that the entire document is part of the policy, not just the page with the price on it. You should work with the appraiser to be certain that the description includes all of the attributes that you consider of value. This includes things like H&A, brand names, designer model numbers, provenance (ownership history), and anything else you or the appraiser count as important. The company is writing a policy that will make you whole again in the case of a loss. They have the same interest that you do in defining exactly what you mean by that.

Neil

Neena,

Chubb, and a few others, offer this style of policy. They tend to be fairly sensitive about inflated appraisals. They try not to accept the really bad ones. In the case of a loss, if they choose to audit the policy and they discover that the value of the policy is substantially out of whack with the value of the property, they can call it a knowing misrepresentation of the facts on your part and retroactively void the whole policy. As with the above, they aren't any more interested in this than you are but it is their final line of defense against fraudlent claims based on bogus appraisals.

Neil Beaty, GG ISA
Independent Appraisals in Denver

 

[strmrdr]

Id insure it for cost + 30% that should cover you for a few years even with the insane price increases recently.
Then every year check the market to see if you need to raise it.
This thread should have some helpfull information:
https://www.pricescope.com/community/threads/why-have-a-certed-diamond-appraised.10662/

 

[reena]

denverappraiser, im really confused: if i go with my proposed course of action the appraisal value would be higher than the insured value, not lower. so why would i ever need to be concerned about chubb auditing the policy? or maybe you're saying that's a good reason not to go with the appraisal value, especially if it's very inflated?

 

[Zoologico]

Good points.

I think I will use the lower estimate. It is more reasonable, and closer to what I paid. I am not interested in defrauding my insurance provider, but I do want to "insure" I am not defrauded by them either.

Also, the lower appraisal is the more detailed and thorough of them which will prove better for the purpose of finding a replacement should the need arise.

Good thing I asked.

Thanks.

 

[denverappraiser]

reena,

Chubb, and all other insurance companies, have departments who are charged with the task of dealing with consumer fraud. It's a huge problem for them. One of the areas of concern is if a consumer and an appraiser conspire to create documents that end up in a policy. This can end up insuring an item that doesn't exist, insuring an item with an inaccurate description (calling your watch a Rolex when it's not), or by attaching fantastically high values to a cash value policy. These and other examples are intended as setup to rip off the company when a claim is filed and the companies take a grim view of such behavior. I solidly agree with them.

At the time they bind the policy, a company will rarely will challenge a policyholder on the validity of their statements but there is ALWAYS a clause that says that if you have materially misrepresented something on your application or your statements to them (meaning the appraisal) then the deal is off and they will owe nothing on a claim. If, at the claims end, they feel that something is seriously amiss, the can and do audit these things. In the extreme, this can result in criminal charges against the customer, the appraiser, or both. A more common result is the denial of the claim, the cancellation of the policy, and a polite request to take your business elsewhere.

Neil Beaty, GG ISA
Independent Appraisals in Denver

 

[reena]

DA, i get the general point, but i'm still confused as to how what you're saying is responsive to my initial question. to be clear: i have no intention whatsoever of defrauding my insurance company or conspiring with my appraiser to submit an inflated value for the ring. to the contrary, i am planning to insure it for the LOWER purchase price rather than the HIGHER appraisal value. maybe i'm misunderstanding you, but i can't see how or why that would be problematic to chubb.

 

[denverappraiser]

Sorry to be confusing.

This is a common area of problems and so I was trying to write for the benefit of other lurkers as well as you. I was certainly not accusing you of being a criminal. In rereading your posts, I think we pretty clearly agree.

What I gave above are reasons to not use inflated appraisal values in an insurance policy. You should insure your ring for the lowest price that will allow full replacement of the piece, to your satisfaction, within the period of the policy. The company is very unlikely to complain if the amount they have to pay in a loss is below the amount that would be required to do that.

As strmrdr points out, it's worth paying attention to inflation.

Neil Beaty, GG ISA
Independent Appraisals in Denver

 

[reena]

okay good, thanks, sorry if i was being dense. i just didn't want you to think i was advocating dishonesty!

the info that you gave is very useful. thanks.