The Ins and Outs of Airplane Insurance Deductibles
By Bob Mackey, representative for the EAA Aircraft Insurance Plan, Administered by Falcon Insurance Agency
December 17, 2009 — We all want to save money on insurance. Usually with auto insurance, if you take a higher deductible the premium comes down substantially. Experience dictates that when buying various kinds of personal insurance, like auto and homeowners insurance, we generally see the premium drop a bunch when we take a higher deductible. What about aircraft insurance? Let’s talk a little bit about deductibles on aircraft insurance.
I’m asked frequently by airplane owners if they can lower their insurance premium if they take a higher deductible. For the most part, taking higher deductibles will not lower the cost of your airplane insurance. I know, you’re probably saying, “Why not?”
Before we get into a discussion about premium vs. deductibles, let’s look at what deductibles are, why they exist, when they might make a difference in how much you pay for your airplane insurance, or when the insurance company might dictate higher deductibles.
Deductibles are one way the insurance company makes the airplane owner participate in the cost of a claim. If you have a standard deductible you will be required to pay anywhere from $0 to $250 toward your airplane’s repair cost. If you have a higher deductible that the insurance company has dictated, you might be required to pay a fixed amount, like $10,000 to $25,000, or a percentage - between 5-10 percent of the insured value of the airplane in the event of a claim. Originally the insurance companies used various types of deductibles in hopes of causing policyholders to be careful and avoid careless accidents. Some say insurance companies originally used deductibles as a way to keep policyholders from intentionally having a claim; in other words, to make sure the policyholder suffered a financial loss at the same time the insurance incurred a claim. Of course intentional losses are not covered by the insurance policy, but the insurance company would have to prove the loss was intentional.
When it comes to airplane insurance, insurance companies generally do not set substantial deductibles and they rarely lower the premium, or agree to a higher deductible, when the airplane owner requests a higher deductible to hopefully lower the premium. The reason: they expect most any claim to exceed a higher deductible and therefore they’ll incur the same amount of claim administration expenses they would with a lower deductible.
I’ll often see a higher deductible if the insurance company anticipates any claims will be substantial. I’ve seen this happen with seaplanes where you usually see 5-10 percent deductibles. (With seaplanes a minor landing accident might very well end up being a substantial claim if the airplane flips over or sinks, which isn’t generally the case with an airplane on a landing gear.)
Another situation in which I frequently see higher deductibles is when dealing with a transition situation, such as a single-engine pilot buying a multi-engine airplane. In these circumstances it is not uncommon to see higher insurance premiums and higher deductibles. Typically the insurance company will set an in-motion deductible of $10,000, or maybe 10 percent of the insured value for any in-motion claims. Normally these higher deductibles are dropped a couple of years later once the pilot has gain (loss-free) experience.
There’s nothing wrong with asking about higher deductibles to lower the cost of your airplane insurance. Working with your insurance agent to explore the option of a higher deductible is totally acceptable. Just don’t be surprised if your insurance agent tells you the insurance company will not offer a higher deductible, for the amount the insurance company will lower the premium is minuscule compared to the amount of the higher deductible. At the same time if you are planning to buy a seaplane or transition to a twin don’t be shocked when you get the quote for airplane insurance and there are higher deductibles. Remember, your insurance agent is the person you should be able to count on to help you maximize your airplane insurance while minimizing the cost.
For a related article, see Occurrence vs. Claim on the EAA website.
Happy and Safe Flying!
If you would like to know more and the EAA Aircraft Insurance Plan, or if you would like to know more about finding the right insurance for the type of flying you do, call 866-647-4EAA (4322), or visit www.eaainsurance.org and complete the online quote request form. When you insure your airplane through the EAA Aircraft Insurance Plan you’re helping support EAA Member Safety Programs and EAA Youth Education Programs. Peace-of-mind insurance coverage plus support for the future of aviation…now that’s a WIN-WIN combination!