Aircraft Hull (Physical Damage) Insurance: You've Got Options
By Bob Mackey, Vice President, Falcon Insurance Agency, Inc.
Between 60 percent and 80 percent of your overall aircraft insurance premium is for aircraft hull coverage. In fact, you pay more for hull insurance for $30,000 of coverage that for the liability insurance, normally a limit of $1 million combined single limit with $100,000 per passenger. Thatís simply because the insurance company pays a lot more in hull claims than they pay in liability claims. Since youíre paying this much for hull insurance, exactly how much do you know about it and do you know your options?
First letís address one of the most important issues with this insurance coverage; under-insurance. All too often airplane owners try to reduce the cost of their overall aircraft insurance by lowering the amount of coverage they purchase. This is a big mistake. You should never insure your airplane for less than you think your airplane is worth. When you under-insure your airplane, you put your airplane at risk for a total loss.
Letís say your airplane is worth $100,000 and you decide to insure you aircraft for $50,000 which lowers the cost of your hull insurance. But if you have an accident and the repair costs are $30,000, the salvage value for your airplane could be $40,000. The insurance company will likely declare your airplane a total loss and pay you the insured value of $50,000. The end result is you lose $50,000.
If your airplane is worth $100,000, then insure it for $100,000. Donít lose your airplane.
You can buy hull insurance at three different levels: ground only Ė (not in motion); ground including taxi; and all risk.
Ground only (not in motion) covers your airplane for all risk exposures while the airplane is on the ground and not in motion, i.e. vandalism, theft, windstorm, flood, fire, etc. Ground including taxi means everything covered under ground only (not in motion), plus risks during taxi, i.e. hitting a parked airplane, hitting a hangar, running into taxi-way lights and signs, etc. All risk adds risks during flight. Accordingly, the premiums increase as you go from ground only Ė (not in motion) to all risk.
For example, consider an airplane worth $50,000. Ground only Ė (not in motion) will range between .75 percent and 1 percent of the insured value. (Percentages may be slightly higher for a rare airplane because of the potential for higher repair costs.) The same $50,000 airplane with ground including taxi coverage will probably cost anywhere from .5 percent to .75 percent more, or a range of 1.25 percent to 1.75 percent of the insured value. All risk coverage may run between 2 and 4 percent and possibly higher for rare airplane and some homebuilts. These ranges may seem wide, however there are many factors insurance company underwriters consider when determining a quote.)
My recommendation: If youíve just finished a homebuilt airplane or if you are purchasing an airplane, you should buy all risk coverage for ground, taxi, and flight. In my opinion, the first year you own any airplane thatís the year to have the all risk coverage. Youíre new to the airplane and the airplane is new to you. If something is going to go wrong, itís going to be in the first year, so buy the all risk coverage. In your second year of ownership you may consider your options.
One closing comment: Many airplane owners ask if they can lower their hull insurance premium by taking a higher deductible. From my experience, higher deductibles are seldom offered. But if you do get a quote with a higher deductible, it will not significantly impact the overall premium. For example, if you have an airplane worth $50,000 and instead of the $100 deductible offered by the insurance company you get a quote with a $5,000 deductible, your cost for hull insurance will decrease about $200. Thatís not much of a savings.
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