Safe-deposit boxes are not all that safe

Bank's FDIC coverage no help on contents

vault's not fireproof

February 17, 2002|By KNIGHT RIDDER/TRIBUNE

People with precious family heirlooms and documents that smoldered in safe-deposit boxes within one of the still-standing World Trade Center buildings have learned a hard lesson.

Although the contents of a safe-deposit box are secured inside a bank's facilities, the items in the box are personal belongings and are not insured by the bank. Consumers need to insure those items on their own.

"It's probably the largest misunderstanding there is out there," said David McGuinn, founder of Safe Deposit Specialists and national consultant to banks for safe deposit operations. "The misunderstanding probably comes about because consumers feel that every type of service provided to them by a financial institution has at least $100,000 of government insurance," he said, referring to coverage by the Federal Deposit Insurance Corp.

The FDIC insures only deposits in accounts at insured institutions. Safe-deposit boxes are considered storage space provided by the bank and do not fall under the insurance laws, according to the government agency. Banks offer safe-deposit boxes as a service to customers, but take no responsibility for what is inside.

That's why an employee will turn around or leave the room after a customer accesses a box, McGuinn said. There really are no laws specifying what can and cannot be held in a safe-deposit box, he said.

"If you're breaking the law and using the box to break the law, a bank could have some exposure if they knew what was in there. If there's no knowledge, there's no reason to be responsible," he said.

A more likely scenario and reason for protection for banks, though, is responsibility for lost or stolen items in a box, McGuinn said. "If I know there are 3,000 $100 bills in there and they disappear, I'm the first suspect," he said.

Another misconception among consumers, said McGuinn, is that vaults and safe-deposit boxes are completely safe. Many are fire-resistant and water-resistant, but are not fireproof or waterproof, he said. While it's a highly unusual set of circumstances, the virtual destruction of items in safe-deposit boxes in a bank branch in 5 World Trade Center shows how items can be damaged, he said.

Though no flames engulfed the building - which was badly burned and damaged after the Sept. 11 attacks and remains standing - the intense heat from surrounding fires essentially made searing ovens of the boxes. (Customers there are now trying to hold the bank accountable for losses because its contracts, following state law, may have provided a loophole by saying the contents of the safe may not be fully protected under the bank's insurance, said McGuinn.)

One of the largest losses in that New York fire were 40,000 negatives of President John F. Kennedy belonging to the former president's late personal photographer. The negatives, which were not insured, are estimated to be worth $2 million to $3 million.

Jeanne Salvatore, vice president for consumer affairs at the Insurance Information Institute, suggests consumers check with their insurance agent to find out what protection they have under existing policies of items placed in safe-deposit boxes. Many homeowner insurance policies will put a monetary limit on how much is covered outside the home or on jewelry. If a person has valuable items, it is worth looking into buying what's called a floater or endorsement - additional insurance on specific items, she said.

Items kept in safe-deposit boxes are generally less expensive to insure because they're in a relatively safe place, she said.

McGuinn discounts safes that many consumers buy at a retail store and use in their home. Ironically, the safe-deposit expert decided he was sick of paying for a box at a local bank four years ago. So he went out and bought a 300-pound safe and put it in his home.

In January, his house was burglarized and the safe was opened with "crowbars and every type of tool," and McGuinn and his wife lost $50,000 in items.

McGuinn jokes that he no longer has anything valuable to put in a safe-deposit box, but he rents one again. That's because a robbery is going to be less likely, he said.

"First they have to penetrate a door that is 2 tons. Or a wall with heat sensors, motion detectors on the inside that have been activated. It would probably be 200 times more difficult to take things out of there than out of my house," McGuinn said.

So what should you put into a safe-deposit box? Anything that is considered valuable or not easy to replace, said McGuinn, who suggests putting items in plastic sandwich bags or plastic containers to lessen potential water damage.

He also suggests telling someone where you have the box. Keys do not identify the bank and, for security reasons, many banks will not confirm whether a person rents a box.

But not everyone needs one, McGuinn said. "If I don't have anything I wouldn't be afraid of losing, I don't need a safe-deposit box."

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