Consignment Insurance: What It Is, How It Works

What Is Consignment Insurance?

Consignment insurance is a type of insurance that covers loss or damage to items that are on consignment, loan, up for auction, or in the process of transfer. It is different from insurance that covers items held in-house as inventory since consignment insurance policies will pay out only if the damage or loss is incurred while the property is not currently held, maintained, or cared for by the owner.  

Understanding Consignment Insurance 

Consignment is an arrangement in which goods are left in the possession of an authorized third party, the consignee, to sell. Typically, the consignee receives a percentage of the revenue from the sale in the form of a commission.

Consignment deals are made on artwork, clothing and accessories, books, and a variety of other products. Someone wishing to sell an item on consignment delivers it to a consignment shop or a third party to do the selling on their behalf. Such a course of action can make sense for an individual, a business that does not have a brick-and-mortar presence, or vendors eager to tap into the wider market offered by certain online stores.

Before the third party takes possession of the good, the parties to the sale must reach an agreement regarding the revenue split. Most consignment shops have standard fee schedules that indicate the percentage of the sales price that is paid to the shop and the percentage paid to the owner/seller. Many consignment shops may also be willing to negotiate, particularly for larger-ticket items such as artwork.

The topic of insurance coverage should also be discussed. Consignment insurance is part of a broader class of gap insurance policies meant to provide coverage for times and situations in which more mainstream policies would not typically pay out. Taking out this type of insurance offers peace of mind, protecting the owner against the risk that their property somehow becomes damaged or lost while in the hands of another person or company.

Special Considerations

Sometimes consignment store insurance will be covered by the consignee. Be sure to check whether this is the case and, if the answer is yes, make a point of checking out the conditions attached to the policy.

Often the item will be insured for the consigned price rather than the gross sale price. It’s also worth verifying that the good is insured from the time it is picked up to the time it is returned to you (in case it doesn't sell).

Should, on the other hand, the consignor or owner be responsible for footing the bill and paying the insurance premiums, the cost of pursuing this path needs to be examined. Vendors who don’t engage much in this type of activity and plan to make a one-off consignment sale for an item that isn’t highly valued might conclude that the price of insurance eats into too much of their profit and isn’t worth the cost.