Your TWA clerk is mistaking knives for firearms. Knives do not have to be declared.
Guns in checked luggage must be declared and in a locked, hard-sided container, unloaded, with ammo in a separate container (and they limit the amount of ammo you can carry). And the airline may ask to inspect the gun.
The airline's liability for lost or dammaged luggage is limited to $9.07 per pound to a maximum of $400 per bag to a limit of $1250 per passenger.
You may purchase "excess valuation" for your baggage, but only if it meets ATA standards. Without seeing it, I can say that your luggage probably does not. Believe it or not, even American Tourister and Samsonite top-of-the-line hardside suitcases do not meet ATA standards for excess valuation.
The best things you can do are:
Have your suitcase wrapped in palletizeing film (essentially big Saran wrap). This will discourage pilfering.
Have your suitcase fitted with a shackle for a good lock. The locks on suitcases are intended to keep the latches for coming open in rough handling, not for security. There are, for example, four keeps that, together, can open every Samsonite hardside suitcase ever made. You can buy all four at a luggage store. Disreputable baggage handlers carry the keys and can open and pilfer from the bags they handle. But, they want to be in and out quickly since they'll loose their job and get in serious trouble if they're caught. So, make yours difficult and they'll wait for the next one.
Use hardside luggage.
Be sure that your name and address is marked on the suitcase in several places and also inside.
Arrive early so that your bag makes your flight easily.
Ask not to have your bag offloaded down the chute at your destination, but held for pickup at the baggage counter. This will delay you considerably but will secure your bag.
Chuck