Wednesday, August 17, 2011

Insuring Diamonds

It's not a Diamond As Big As The Ritz, but it's pretty big...

In case you haven't noticed, Costco is selling a $1 million diamond ring.  There's only one.  I assume, yes, you get the cash back at year end.  In this link, you can see the GIA certificate.  More interestingly, in this link they provide you the appraisal for the ring.

Why is that interesting?  They're selling you a diamond for $1 million, and giving you an appraisal for $1.496 million.  Anyone who has ever bought a diamond knows they can get an appraisal to say anything they want, within reason.  That's because insuring jewelry is very profitable business--as long as appraisals run substantially above the cost of the jewels.  Notice that appraisal says "This report is for insurance."

(Anyone spending this much on a clump of crushed charcoal should be willing to absorb the risk of loss without insurance!)

You want to insure that diamond?  Great, insure it for $1.5 million, even though it is a $1 million diamond.  Guess what? You're insurance policy replaces the diamond, it doesn't pay you cash.  If you want to insure your Mazda for the value of a Maybach, you can do that too.  It doesn't make you richer.  And, when you total your car, your insurer makes you whole with a replacement Mazda...less depreciation.


[Note my new probably required disclaimer: I am not providing you advice on buying insurance.  Nor am I offering to sell you insurance on anything!]