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Beware of holes in bank-box safety net

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

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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 Corporation's $100,000 ($250,000 if it's a retirement account) guarantee, however, does not extend to safe-deposit boxes. And, to many homeowners' chagrin, their personal policies won't 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 insiders' 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 turns papers to ash and liquefy metals inside that steel oven. And a bomb in any safe-deposit box at the branch would obliterate everything in that area.
  • Theft: If you can prove a bank employee is behind your disappearing valuables, FDIC spokesman 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 Eustice Insurance in New Orleans, says 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, coin 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 premiums typically hover around 60 cents per $100 in value for jewelry, 45 cents per $100 for furs and 30 cents per $100 for fine arts.

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