What Aircraft Owners Need to Know About Aviation Insurance
Nothing can take the joy out of being a pilot or operator like having an incident with your aircraft, and then learning that it is not covered, or not sufficiently covered, by your aviation insurance. To avoid that one-two punch, it’s critical that you understand what you need and what you’re getting when purchasing your aviation insurance policy. It’s also important to refresh your memory periodically on the insurance provided by a policy you have not looked at in many months or years.
Evaluating a policy will be easier and less stressful if you have at least a broad, general understanding of the terms it contains and the acronyms that aviation insurance professionals use to describe them. Read on for a description of some of the key concepts.
Key Considerations when Purchasing an Aviation Insurance Policy
Keep these aircraft insurance pointers in mind as you prepare to buy an aviation insurance policy for your fixed- or rotary-wing aircraft. Not only will this make you a better-equipped buyer, it will help you avoid purchasing a policy that doesn’t meet your needs.
Understand how aviation insurance is sold
Aviation policies are underwritten and backed by companies like Global Aerospace, but most are sold by independent insurance producers. In some places, producers may be referred to as insurance brokers. Either way, the producer works for you, not for the insurer. Consequently, while it’s important that the company behind the policy has a strong balance sheet and demonstrated expertise in aviation, it’s also critical to find a knowledgeable producer that you can trust and who will help educate you about aviation insurance if needed. It’s wise to do some research on the internet and also ask around within the aviation community when selecting a producer to represent your interests.
Understand the insurer’s claims philosophy
Insurers approach claims somewhat differently. It’s understandable to hope you never have to make a claim, but you want to be sure the company you select has a history of resolving issues fairly and rapidly.
Consider the consequences of having too much or too little insurance
Aircraft are insured on an “agreed value” basis. Premiums charged for physical damage to the aircraft are a percentage of the value on which you and the insurer agree. Knowing that, you may be tempted to insure to a value less than the true value of your aircraft to save some premium dollars. On the other hand, it might seem sensible to select a higher value, so you’d have more options in the event the aircraft sustains damage that cannot be repaired. But there are other considerations. If you place a low value on the aircraft and it suffers substantial damage, you may find yourself in a situation where it must be declared a total loss, even if it is repairable. On the other hand, if you place too high a value on your aircraft and it is severely damaged, the cost of repairs may not exceed the insured value, and you could be left waiting for an extended period while your airplane is being extensively rebuilt.
Understand liability insurance and whether you are required to have it in your area
Even if you are not legally required to have liability insurance, you may want to consider getting it. The legal liability you could face if your aircraft is involved in an incident causing an injury, death, or significant property damage can be substantial. If you have liability coverage, the insurer will also pay for your legal defense if you are sued for these losses.
Know whether you are required to have passenger liability insurance
Different jurisdictions have different requirements, typically based on the allowable takeoff weight of the aircraft. Find out what’s required in your area.
Have a rough idea of what your insurance will cost
Before you begin the purchase process, having some sense of what you will likely be paying can be helpful. Talking with friends in the aviation community who are comfortable sharing information on their aircraft policies can give you a rough idea of costs.
Know who you want to allow to fly the aircraft
Details on these individuals must be provided to the underwriter as this information could influence the coverage and the price.
Know whether you are required to have liability insurance where your aircraft is based
Some hangar owners or airports require this type of aircraft insurance coverage, and may specify minimum limits.
What to Look for When Reviewing Your Existing Policy
Review your aircraft insurance policy at least once a year. In reading your policy, you should pay attention to the aspects of the policy described above, and also these features:
- Has the insurer maintained strong financial performance and a positive reputation?
- Do your deductibles still seem reasonable? Does the policy specify different in-motion, not-in-motion, and moored deductibles?
- What are the exclusions, and could they limit the way you operate your aircraft?
- Are all pilots who fly the aircraft covered by the policy?
- Is any lender or leasing company that has an interest in the aircraft covered in case of a loss? Most require that they are named on your policy.
- Are there any extensions on the policy? This could include things like “premises coverage” for situations where someone is injured on premises you use in conjunction with the operation of your aircraft, or hurricane repositioning coverage that pays a portion of the cost of repositioning your aircraft out of harm’s way to prevent damage.
Aviation Insurance Acronyms
Whether you are looking to purchase new aircraft insurance coverage or reviewing your existing policy, it’s helpful to be familiar with the many aviation insurance acronyms used by insurance professionals. Some of the more common include:
NIM — Not in motion. A deductible that applies in situations where an aircraft is damaged while not moving under its own power.
IM — In motion. A deductible that applies in situations where an aircraft is damaged while flying or taxiing.
RIM — Rotors in motion. A type of deductible that is similar to IM but for helicopters.
ARFG — All risk flight and ground. A type of insurance that is similar to “collision and comprehensive” coverage on an automobile.
GRO — Ground risk only. A type of insurance that only covers risks while the aircraft is not in the air.
BOW — Breach of warranty. This provision ensures that a financial institution that has a financial interest in an aircraft gets paid if the aircraft is damaged, even if the policyholder does not. Most lenders require this.
AP/RP — Additional premium/return premium. These usually come into play if coverages are changed during the policy term.
WOS — Waiver of subrogation. If your insurer pays a claim, it has the right to seek recovery of its payment from others who are legally responsible. WOS means the insurer waives that right.
PR/SR — Pro rata and short rate. These terms relate to how return premium is calculated if the policy is cancelled. If the insurer cancels then the return premium is pro rata but if the insured cancels then the premium return is calculated on a short rate basis.
COI — Certificate of insurance. A document that summarizes the insurance afforded by the policy.
LR — Loss ratio. The ratio of claims paid to premium received.
TRIA — Terrorism Risk Insurance Act. A federal law that requires insurers to offer insurance for acts of terrorism, but provides that the insurance industry and the federal government share certain terrorism-related losses on specified terms and according to a specific formula.
WIP — Work in progress. This is used if an aircraft is being refurbished to document changes in its value as work progresses.
Knowledge is Power
The more you know about how to buy aircraft insurance coverage or update your aviation insurance policy, the more complete and cost-effective your coverage will be. If you have questions, please contact us at your convenience.
Let’s imagine that, unfortunately, you experienced a loss, incident or accident during which your insured aircraft sustained physical damage. Whether it results in a “total loss” or a “partial loss,” it is commonplace that after the adjustment and settlement of the physical damage insurance claim, the aviation insurance provider’s claim handler prepares to tender its payment of the physical damage loss to the policyholder (the “named insured”) and any additional loss payee(s) endorsed under the aviation insurance policy, unless otherwise directed.
The cost of aviation insurance, like all insurance, is driven by risk factors. The higher your risk of being involved in an incident, the higher your insurance premium will be. The good news for aircraft owners and operators is that there are steps you can take to show the underwriter reviewing your insurance application that you pose a lower risk. In doing so, you can “earn” a better insurance premium.