Sara and James owned a 1930s vintage watch. It was made of 18ct white gold and its grain-set dial was surrounded by 40 single-cut diamonds of good commercial quality.

As a condition of insurance, they had to have the watch valued by a qualified valuer. The valuer said the replacement value for the watch was $3000.

Three years later, time stopped. The watch was lost and the couple were forced to lodge a claim. The insurer had the watch revalued. It offered to settle the claim for $1050 – its price on the second-hand market – rather than $3000.

Sara and James were stunned. The insurer had accepted premiums based on the watch’s replacement value of $3000. They told their insurer: “to try to settle this claim for one-third the insured value is absurd.” Eventually, the insurer relented. It agreed to pay $3000, but only after the couples’ valuer defended the original valuation.

Valuations

Insurers cap their liability for valuable items (see "Handling a dispute" below). When it comes to jewellery, a typical cap is $3000 for a single item and $15,000 for multiple items. Some insurers are less generous than others (see our Insurance cover table). If you want to increase the cap, you need to ask your insurer to specify your jewellery on your policy schedule. You may be charged a higher premium for the privilege.

Insurance & Savings Ombudsman Karen Stevens recommends regular professional valuations for items of jewellery over the policy cap. Stevens says valuations can speed up the claims process and enable you to claim an item’s full value. Depending on an item’s complexity, a full valuation for insurance purposes can cost $50 to $115.

Alas, there’s no obligation for the insurer to pay the item’s specified amount – even if it’s based on a professional valuation.

IAG, the country’s largest general insurer, has jewellery revalued whenever a claim is made. Craig Dowling, IAG Head of Corporate Affairs, says: “this is because often a loss happens sometime after a customer first obtained a valuation for a piece, so another is needed to establish its current value.”

It’s a similar story with AA Insurance. The company won’t get an item of jewellery revalued if it already has an up-to-date valuation. But AA Insurance Customer Relations manager Amelia Macandrew says: “due to jewellery values changing we will, on most occasions, organise a new valuation to ensure the customer receives the right settlement.”

In practice, this means you’ll get a smaller settlement if the insurer’s valuer believes your jewellery is worth less than the specified amount. But you won’t get a higher settlement if the insurer’s valuer finds your jewellery has been undervalued – the specified amount is the maximum you can claim.

Levels of cover

Insurers offer two levels of cover for your contents:

  • Replacement value: the cost of repairing or replacing the item to an as-new condition. Insurers sometimes refer to this type of cover as “new for old”.
  • Present value: the cost of repairing or replacing an item so that you’re left with something of a similar age, quality and condition.

NB: Your item won’t necessarily be repaired or replaced. Instead, your insurer may choose to pay-out the item’s replacement or present value (depending on your level of cover).

If you have contents insurance, you should check which items are covered for replacement value and which are covered for present value. Most comprehensive policies automatically cover jewellery for its replacement value, but there are exceptions.

While you’ve got the policy open, check for any limitations or conditions that apply to jewellery. For instance, ASB Bank and The Co-operative Bank require you to have specified items of jewellery serviced by a jeweller every 12 months. If you don’t, you can’t claim for loss or damage caused by faulty clasps or loose settings.

Settling the claim

When you have replacement-value cover, your insurer will most likely opt to replace your lost or stolen jewellery. IAG says it’ll use the quote provided by its valuer to set up a purchase order or credit at your chosen jeweller. That’s straightforward if a suitable replacement is available on the retail market. It’s more difficult if you’re claiming for an antique or handmade item.

Karen Stevens says the replacement value will be for a reasonable equivalent. A cash settlement is a possibility if an acceptable new replacement can’t be found. But insurers may reserve the right to settle cash pay-outs for the item’s present value.

In the UK, the Financial Ombudsman Service has stated it’s unfair for the insurer to insist on replacing one-off items with a modern substitute from a major high-street retailer. Instead, claimants should be allowed to choose where they buy a replacement or, alternatively, opt for a cash settlement if an acceptable replacement isn’t available.

Stevens says that’s a reasonable position. “Generally, a replacement insurance policy will aim to repair or replace the item, if at all possible. If a replacement isn’t available or possible, it would make sense for there to be a pay-out for the value without deduction.”

Our view

  • You should get your precious jewellery specified on your policy schedule. You should also get it valued. You stand a better chance of a successful claim if the item has been specified – and you can back up the amount with an independent valuation.
  • You’ve had antique jewellery go missing and an acceptable replacement isn’t available? If you’ve got replacement-value cover for it, we think you shouldn’t have to settle for its market value.
  • Challenge your insurer if you’re not happy with the settlement it’s offering for lost or stolen jewellery. If necessary, ask your own valuer to reiterate or issue another valuation for your jewellery. If you stick to your guns, your insurer may be willing to compromise rather than get bogged down in a dispute.

Report by Luke Harrison.