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The Truth About Aircraft Insurance

Rick Plezia November 23, 2015 Insurance

In most cases, the owners and operators of aircraft are required to carry, at a minimum, third-party liability aircraft insurance, covering the aircraft and the operation of that aircraft. It’s much like car insurance; if you want to fly, you have to demonstrate financial responsibility for any damage that might occur while it’s in operation. In addition, if your aircraft is being used as collateral for financing, the lender will almost always require the operator to cover the aircraft with what is called “hull coverage” and quite possibly replacement value insurance as well, in order to protect their investment.

All About Aircraft Insurance

Most aircraft insurance is obtained in much the same way as car insurance; through an insurance agent or broker who handles those sorts of policies. The aircraft owner will fill out an application, and the insurance company will review the application and investigate the applicant to make a risk assessment, to determine the likelihood that they will have to pay a claim. They will examine the type of aircraft, the operator’s qualifications as a pilot and the nature of the operation, and determine the amount of the premium.

Though most aircraft insurance policies are a bit more personalized than car insurance policies, they represent a binding contract between the aircraft’s owner and the insurance company, which means it’s necessary to comply with all of the terms and conditions or lose coverage. That means reading the policy, which is something owners and pilots tend to not do. Quite often, they check out the declaration page to confirm that the proper parties are named and that the appropriate coverage limits are in place, but they rarely read the rest, which often contains a lot of information the pilot or aircraft will have to be aware of, in order to ensure that they are in compliance with the policy terms.

It is always a good idea to thoroughly review an aircraft insurance policy, beginning with the declaration page, but without stopping until the end. There is a lot to know; most aircraft insurance policies will include coverage for aircraft damage, which applies whether it is damaged on the ground and not in motion, or while it is in the air and in motion, and aircraft liability coverage. It’s possible to purchase cheaper insurance coverage that only covers either/or, but unless the aircraft will be stored for long periods of time, it’s not recommended. Also, if the aircraft is collateral for a loan, the owner may not have the choice.

In most cases, the aircraft damage coverage will cover a lot, but not everything. One important thing to note: the owner is the sole person who can dictate who repairs their aircraft.  Ultimately the pilot is responsible for making sure an aircraft is safe and airworthy, so be sure to avoid any policy that states. otherwise

Liability When Aircraft Damages Other Property

Likewise, aircraft liability coverage protects the aircraft’s owner from liability or responsibility to third parties for damages they may have suffered as a result of the operation of your aircraft, and the policy will require that the insurance company both indemnify and defend the owner against all such claims, which is a fancy way to say that, if the owner is considered responsible for injuries and damages, the insurance company is responsible for paying, up to the policy limits. Many policies will have a maximum limit for liability coverage, as well as a “sub-limit.” For example, the maximum “sub-limit” per passenger may be $200,000, with a maximum limit of $1,000,000 per occurrence, but that doesn’t mean each claim will pay out $1,000,000; it means the most for each claim is $200,000; if three passengers are hurt, the maximum is $200,000 each. On the other hand, if the owner has “smooth” coverage, the maximum limit would be $1,000,000, regardless of how many passengers are injured.

The duty to defend also means the insurance company will pay all legal defense costs in any liability claim, and that benefit alone can make a policy worthwhile, because aviation law is expensive; it could even exceed the amount of the payout.