Ready for Takeoff? Having Sufficient Insured Value is Critical
You’ve finally done it—you’re the proud owner of your very own aircraft. Perhaps you’ve even done some upgrades and you’re flying behind a recently installed glass panel and enjoying the scent of new leather upholstery.
You’ve completed your pre-flight check and are getting ready to take off. But have you thought of everything? Whether your aircraft is brand new or you’ve owned it for many years, have you verified that you would be fully covered in the event of a loss?
Understanding Agreed Value Insurance
When you initially insured your aircraft, your insurance broker may have asked about the value at which you want to insure it. If you’ve never dealt with agreed value insurance, this question might be new to you.
While most people are familiar with “actual cash value” insurance (the type you would purchase for a car or truck), agreed value stipulates that the value agreed upon will be the amount paid in the event of a total loss. Actual cash value insurance is based on depreciation, whereas agreed value is not.
Agreed value insurance is common for higher-value items, such as aircraft, classic car collections, and jewelry. These items typically don’t depreciate on the same scale as other assets do and may have a higher sentimental value to their owners. The agreed value amount is paid regardless of the value of the aircraft at the time of the loss.
Resources for Determining Aircraft Value
There will be a range of values to consider for a particular model due to different available configurations. For example, the insured value range of a 1975 Cessna 172 could be anywhere from $25,000 to $125,000. The range is intentionally broad and allows you to select a value that most closely reflects your configuration. Insuring outside of this range is possible but requires documentation on the basis for that amount.
So, how do you know what value to tell your broker?
Choosing a value may be straightforward for someone who has just purchased their aircraft. However, it may require some research if you’ve owned the aircraft for a while, have added upgrades or equipment (interior enhancements, avionics, etc.), or had a recent engine overhaul.
There are a few ways to determine the correct value, including getting an appraisal and using “Aircraft Blue Book” values. It can also be as simple as searching for an aircraft with the same specifications as yours and seeing what it would cost to purchase it.
This exercise is important for aircraft that have been insured at the same value for multiple years. According to Aviation Pros, the asking price of aircraft rose an average of 20% to 30% between 2021 and 2022. Add to that increased labor costs, parts availability issues and more advanced technology, and the cost difference to replace an aircraft with a like model could be substantial.
A correct insured value gives you an opportunity to retain the aircraft in the event of an incident, while a lower insured value means less damage could result in a total loss. An aircraft that was purchased for $40,000 in 2017 may cost closer to $50,000 now, and repair costs that were $25,000 could now exceed $30,000. If the aircraft is underinsured, that $5,000 could be the difference between repairing the aircraft and suffering a total loss. Additionally, the agreed value of $40,000 would not be enough to purchase a like replacement aircraft after that loss.
The Value-Premium Relationship
A higher insured value does correlate to higher premiums – but not to the degree many people believe.
Take the Cessna 172 mentioned earlier as an example. It was purchased at $40,000 but recently had upgrades installed, increasing the value to $80,000. Does doubling the insured value double the premium? In the majority of cases, the answer is no! In fact, doubling the insured value of this aircraft increased the premium by less than 40%. That translates to double the coverage for an increase of less than half the original premium cost.
So, when should you consider reviewing your insured value?
- Immediately if you haven’t reviewed your agreed value in a while
- Any time upgrades are made to the aircraft (avionics, interior, engines, propellers, etc.)
- Just before renewing your policy
Take some time to look up comparable models on the market. If you had a total loss, would you be able to replace yours with like kind and quality for your agreed value? If the answer is “no,” discuss increasing your insured value with your broker. Verifying that your aircraft is insured for the correct amount ensures that not only is your investment covered in case the value has increased, but your upgrades are covered as well.
Aircraft insurance should be there for you when you need it. Be sure you have the correct amount in the event of a loss.
One quick online search will tell you why insurance companies are withdrawing from providing coverage in disaster-prone areas around the U.S.—it’s extremely expensive to address losses.
As warmer weather arrives and we enter what is traditionally the busier flying season, it is helpful to consider what to do and what to have available in the unfortunate event of a claim. Knowing what to anticipate is beneficial to the efficient, expeditious and collaborative processing and resolution of your claim.