Your safe deposit box may not be so safe

MSN Money
    Your jewels, stock certificates, deeds and other precious
    valuables in your safe deposit box are absolutely, positively safe,
    right? Not necessarily.

    Where's the safest place to keep your great-grandmother's diamond
    ring? If you said, a safe deposit box, you're wrong.

    It's true that the chances your valuables will disappear from the bank vault are slim. But many people mistakenly believe that even if the worst happens, their property has the extra protection of federal bank insurance.

The Federal Deposit Insurance Corp.'s $100,000 guarantee, however, does not extend to safe deposit boxes. And, to many homeowners' chagrin, their personal policies may not cut it, either.

David P. McGuinn, founder of Houston-based Safe Deposit Specialists, has rubbed shoulders with more, than 100,000 safe deposit managers and written the Safe Deposit Policy and Procedure Handbook. The majority of box holders, he insists, believe "the FDIC has my back."

"When you have a loss, people look for someone to blame," McGuinn says. "Unfortunately, that's now the bank, because historically we haven't bothered to give them anything in writing that explains or highlights the clause saying we don't insure, what you put in a safe deposit box."

What to worry about

The bank boxes do offer security not available in most homes. But nothing is failsafe. McGuinn knows the potential trouble spots inside and out:

Fire: It's not the flames licking the vault that owners should fret. Heat is the true culprit that can turn papers to ash and melt precious metals inside that steel oven. And a bomb in any safe deposit box at a bank branch would obliterate everything in that area.

Theft: If you can prove, a bank employee is behind your disappearing valuables, FDIC spokesperson Frank Gresock says, the bank's liability insurance should apply. Otherwise you follow the same filing steps with stolen safe deposit box items, you would with items taken from your home.

Flood: Rising water is the most common damage culprit, since banks usually stash the boxes in a basement. And although manufacturers build vaults to resist water for a certain period, accompanying lighting, security and telephone conduits are channels for the water to seep inside and fill your box like a bathtub.

In cases of theft and fire the contents coverage clause of your homeowners policy often covers damage regardless of the property's physical location. But this isn't a hard-and-fast rule. Don Beery, vice president and partner of Eustis Insurance in New Orleans, advises that you check your policy for language stating "we cover personal property owned or used by an insured, while it is anywhere in the world."

Even this clause might not bail you out in a flood. Most homeowners' policies exempt this act of Mother Nature. "My mother-in-law rented a safe deposit box to hold her stock certificates," says Beery. "Then the flood waters covered Mobile, Ala. and she didn't feel very secure anymore."

Added coverage for special property

To be on the safe side, consider a personal-articles floater. These endorsements to a homeowners' policy cover pre-established categories, such as jewelry, coins and stamp collections, but agents have leeway to expand the coverage to areas you need.

"Companies territorially rate personal-articles floaters on the probability of theft, where you principally reside," Beery explains. Bills of sale, catalog listings and appraisals determine each insured item's value. The annual premiums typically hover around 60 cents for each $100 in value for jewelry, 45 cents per $100 for furs and 30 cents per $100 for fine arts.

Even people without safe deposit boxes latch onto floater policies for valuable items, because they carry no deductible and kick in for what agents term "mysterious disappearance." For instance, when Beery's wife lost the setting from a diamond ring in a schoolyard, the policy paid for its replacement. "But because this didn't involve theft, it wouldn't have been covered by our homeowners' policy," he points out.

Know, however, that if you do purchase this coverage for property that you keep at home instead of a more secure safe deposit box, the premium cost more, than doubles. And if you do keep, for example, pricey jewelry in a bank box, when you wear it on a special occasion, you must inform your agent that you've removed it from the vault and then cover it at the higher premium for the duration of the event.

"Most people don't want to bother with that, so they insure jewelry at least at the higher rate," Beery says.

Some insurance companies put limitations on a personal-articles floater. Some won't write it for more, than your homeowners' policy contents coverage. Others draw the line at 50 percent of that coverage. A rare few will write stand-alone floaters. Beery suggests, consumers ask their agents for quotes with their current home insurer and ask for alternatives, if the price or terms seem out of whack with their needs.

Then there are considerations for covering documents stowed in a safe deposit box. If your financial broker or 401(k) fund doesn't hold your stock and bond certificates in the street name, you'll need to take out a seven-year lost instrument bond for this safe deposit box item. Plan to pay $20 per $1,000 of coverage for this coverage!

Opting for insurance only

So why bother with a safe deposit box at all, if you need all this extra insurance? That's a question many people are asking themselves.

"I don't think the average person has a safe deposit box any more. I don't and my dad was a banker," Beery confesses. "These days people rely heavily on insurance to take care of valuable things."

Technology also offers new security options. Companies like in Montreal provide digital safety boxes. The service archives, in redundant computer files, a customer's important documents, photo albums and home movies.

"While I can see the need to insure the value of physical belongings in a safe deposit box, I question both the possibility and usefulness of insuring documents and memories," says spokesperson Yves Caron. Basically, Caron adds, his company is insurance.

Finally, if you do decide, a safe deposit box is your best security move, don't skip common-sense protection steps. McGuinn says to store documents within airtight, zip-lock or Tupperware-style containers inside the box. Stash copies of important documents in a separate location and photograph the vault's contents!

Anything you do to increase chances of successfully identifying, claiming or recovering an item is worth the effort.