Consignment Insurance: What It Is, How It Works

Consignment insurance protects against loss or damage to objects that are on consignment, loan, up for auction, or in the process of being transferred. It differs from inventory insurance in that consignment insurance coverage will pay out only if the damage or loss occurs when the property is not actively kept, maintained, or cared for by the owner.

Understanding Consignment Insurance 

Consignment is an arrangement in which goods are left in the possession of a third party, the consignee, for the purpose of sale. In most cases, the consignee earns a percentage of the selling money in the form of a commission.

Consignment sales include artwork, apparel and accessories, books, and a wide range of other items. Someone who wants to sell an item on consignment gives it to a consignment business or a third party to sell on their behalf. Such a course of action may make sense for an individual, a firm without a physical presence, or vendors looking to get into the larger market offered by some online marketplaces.

Before the third party can take possession of the item, the parties to the sale must agree on a revenue share. Most consignment shops have standard fee schedules that show the percentage of the sales price paid to the shop as well as the percentage paid to the owner/seller. Many consignment businesses may also be willing to haggle, especially for higher-priced items like artwork.

Insurance coverage should be reviewed as well. Consignment insurance is a type of gap insurance policy that provides coverage for times and situations where more traditional policies would not normally pay out. Purchasing this form of insurance provides peace of mind by protecting the owner against the possibility that their property will be damaged or lost while in the possession of another person or company.

Special Considerations

Consignment store insurance is sometimes provided by the consignee. Check to see if this is the case, and if it is, make a point of reviewing the policy's conditions.

The object is frequently insured for the consigned price rather than the gross sale price. It's also a good idea to make sure the item is insured from the time it's picked up until it's returned to you (in case it doesn't sell).

If, on the other hand, the consignor or owner is responsible for footing the bill and paying the insurance premiums, the cost of going down this road must be considered. Vendors who don't conduct much of this type of business and want to make a one-time consignment sale for a low-value item may conclude that the expense of insurance takes up too much of their profit and isn't worth the cost.