First Time Buyers - Aircraft
Insurance Information
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Buying a
first airplane is as exciting for most people as buying a first car.
Most first-time airplane buyers approach their purchase very much the
same way as they do when shopping for an automobile. Typically, they
first decide how much they can afford to spend on an airplane — it
might be $20,000 or $400,000, depending on their income, obligations
and priorities — and then they start scanning Trade-A-Plane looking to
find how much airplane that much money will buy. One thing
they
often neglect is to make sure that they can insure the airplane BEFORE they buy it.
Insurance
companies will require the owner/pilot to have a minimum set of
requirements (total flight hours, hours in make/model, tail wheel
and/or retractable gear time, etc) for the aircraft. If you
are
not sure what type of aircraft you are qualified for, give us a call
and we can tell you right away where you stand. If you have
your
heart set on an aircraft that you are marginally qualified for, we will
work with you to develop a pilot training and transition plan before requesting
quotes from the insurance companies which can turn a potential
rejection into a reasonable price quote.
To
help you navigate through the ins and outs of aviation insurance, we
have put together this list of Frequently Asked Questions (FAQs) as
well as an Aviation
Insurance
Glossary and a List of Acronyms.
FAQs
Are some
airplanes more expensive to insure than others?
The
short answer is yes. Some aircraft have better safety records
than others. Turbine aircraft are generally safer than piston
aircraft; however, a complex aircraft needs to be piloted by an equally
qualified pilot. For some aircraft with questionable safety
records there may be only one or two insurance companies that are
willing to provide coverage and what they may provide could be very
costly and limited. Take into consideration the safety record
of
an aircraft and your qualifications in that particular aircraft, and
then work with us before the purchase to ensure you have the best
possible insurance coverage at the best possible
cost.
What is a
Broker of Record letter?
Aviation
insurance companies are dependent upon agents to produce business for
their review and evaluation. They usually accept business on a first
come-first served basis; meaning the agent to submit your application
for insurance to a specified insurance company has the rights to that
particular insurance company for a quotation for coverage. The first
agent to submit anyone to a particular company is known as the agent of
record to the insurance company in question. If the customer decides
that he wishes to change agents then he can designate an agent with
whom to do business. By signing an agent of record letter the purchaser
of insurance will authorize a different agent to represent him to the
insurance company. It is important to recognize that signing an agent
of record letter actually terminates the current or existing agent
which represents you in the market place among insurance
companies. The letter also disengages the current or existing
agent and does not allow that agent to negotiate or act on your behalf
after the letter activates a new relationship with the new agent or
broker. Signing an agent or record letter it is not much
different than an actor hiring an agent. From the time of
hiring,
the agent takes care of all negotiations and details with the parties
in question.
What should
you know about your insurance company?
The reason you buy insurance is for payment of claims, therefore you
should
understand you insurance company’s claims payment ability and
philosophy. All companies vary in their attitude towards
servicing their clients and payment of claims. Even if we are
prompt with servicing your account, it does not mean that we can always
get immediate results from an insurance company. The old
theory
of “you get what you pay” for holds true. Companies with
higher
AM Best and S&P financial ratings can, and often do, charge a
higher premium for their policies and are usually more responsive to
the claims needs of their customers.
Why do rates
differ so much between insurance companies?
In most cases, it is all in the details. Every insurance contract is
different, especially when it comes to coverages. Be sure to read your
insurance contract to make sure you are getting all the coverage you
need. In the event of a claim, the amount of your premium will be the
furthest thing from your mind, what will be important to you is whether
or not you were properly covered.
Also, competitive pressures in
the marketplace often produce wild rate swings. Any company needing or
wanting to build market share can do so by under-pricing the risk for
the first year. If you have multiple quotes for your aircraft insurance
and one premium amount is substantially lower than the others, you
should ask yourself some questions. Does the cheaper company insure
substantially safer pilots than the others (probably not)? What will
happen to my insurance rate in subsequent years? What will happen to
the marketplace if insurance companies are unable to sell their
policies at prices necessary to pay the claims?
How do I
apply and what information do I need to gather?
You can either give us a call or use our online quote forms to start
the process. Fill
out our detailed
quote form if your have all of your information readily
available, or use our quick
quote form
to get the process started while
you gather your information.
You will need the following information:
- Aircraft:
year, make, model, # of seats, storage location and type
(hangar/tiedown)
- Who is
Insured:
named insured(s), additional insured(s),
lienholders
- Type
of coverage: Aircraft Property Damage coverage,
Liability coverage
- Liability
limits: Limit of liability, smooth (Combined Single Limit)
or sublimits, hull value
- Pilot(s):
Total time, time in make/model, loss or incident history, certificates
and ratings, most recent medical and BFR dates for each pilot
How critical is correct
information? Should I overestimate my pilot
hours?
It is important to give accurate information to underwriters. It is
acceptable to use approximations on such things as pilot hours if you
underestimate. Many policies will make the hours and ratings given on
the pilot's underwriting submission a requirement of the policy. If you
over estimate your experience, you may find yourself not meeting the
minimum standards set for you in your policy. If you employ a pilot, it
is up to you to assure the information furnished by your pilot is
accurate. Check his logbooks.
I'm not very
familiar with the make and model of my aircraft -- am I at risk for
being
rejected by the underwriter?
If the aircraft to be insured is of a make and model unfamiliar to you,
work with us to develop a pilot training and transition plan before you
or anyone approaches the underwriter. A strong transition plan takes
the burden off the underwriter and may turn an underwriting rejection
into a good quotation. Keep in mind, the underwriter is paid to accept
or reject the risks as it is presented. If accepted, it is his job to
price the policy and outline the coverage's he is willing to extend for
that price. It is not his job to engineer the risk to make it more
acceptable. That is up to the client and the agent.
I applied for
a quote and bound coverage. Why do I need to return an application
after coverage has already been in effect?
All
aviation insurance companies require a new application if you are a new
customer to them. This application is specifically worded with your
individual effective date, your exact liability limits, your hull
value, and questions tailored to your exact policy. Even if you have
already started a policy, the insurance company will require an
application with your information and an original signature. The
application becomes part of your policy. Many insurance companies
require a new application every three years if you are a current
client, and others want a signed application every year.
What types of
coverage are available?
Aircraft
hull insurance covers physical damage to the aircraft you own. Hull
insurance can be written on a “named perils” or "all risks" basis ("all
risks" is most common). The basic difference between the two is that
the first tells you what causes of damage (perils) are covered and the
second tells you what causes of damage are not. In the first, you must
prove that the peril was covered; in the second, the insurer must prove
that it was not.
Liability Coverage is the protection you have
against claims arising from bodily injury or property damage for an
accident that you are deemed liable. This will cover your liability for
damage to the property of others that isn't in your care, custody or
control, as well as bodily injury coverage to passengers or other
persons who are injured on the ground or in another aircraft.
Explain
Limits of Liability – Combined Single Limit versus sub-limits
Some
policies place a limit on the maximum coverage they provide for Bodily
Injury and Property Damage. These "split limits" appear on the policy
as separate amounts. For example: $100,000 property damage, $100,000
bodily injury, $200,000 each occurrence. This is an older form of
liability coverage and most insurance companies no longer write "split
limits."
Combined Single Limit coverage, also known as "smooth
limits," combines your coverage for both Property Damage and Bodily
Injury per occurrence into a single limit with no further limitation.
In other words, regardless of whether the claim against you arises from
injuries or death to persons or from damage to other's property, the
amount of protection you have is the total Combined Single Limit. It is
usually expressed as a single number, for example: $1,000,000 each
occurrence. In general, this type of coverage provides more protection
when compared to sub-limited coverage, but it is also more expensive.
The
most common liability coverage is a sub-limited coverage. Sub-limited
liability coverage is also Combined Single Limit coverage, but it
places a limitation on your coverage for a specific loss in the form of
a lower amount than the each occurrence amount. Most commonly, these
sub-limits apply to all or a type of Bodily Injury. For example,
$1,000,000 each occurrence limited to $100,000 per person places a
maximum amount of coverage for death of or injuries to any person at
$100,000. This amount is part of, and not in addition to, the
$1,000,000 each occurrence limit.
Sub-limits may also be worded
on a per passenger basis. This wording provides superior coverage over
the per person wording since it only reduces coverage on passengers. A
per person limit reduces your coverage for bodily injury to all persons.
What limit of
liability do I need?
Each
individual's situation is different. Liability Coverage is the
protection you have against claims arising from bodily injury or
property damage . These can range literally into millions of dollars.
The higher limit of liability you buy, the more expensive it can be. In
general, most insurance professionals will advise you to purchase the
highest limit of liability that is available and that you can afford,
since "pinching pennies" on this coverage could leave you responsible
for the amount of loss which exceeds the limit you bought.
That
question is best answered by looking at your overall aircraft
operations. Do you carry passengers often? If so,
what kind
of passengers are you carrying? Do you only carry family
members? If the answer is yes, then maybe you would be
comfortable with a lower limit than if you were carrying high net worth
clients. We normally advise our clients to buy as much
liability
as they can reasonably afford and/or a limit that will make them
comfortable. In the current aviation insurance market, it is
often difficult to meet both objectives.
Are legal
costs included?
Unless
specified in an Underwriter's policy we always work to ensure our
client’s legal defense costs are included in any policy even if your
limits of liability have been exhausted by the payment of judgments or
claims.
What is
medical payments coverage and should I have it?
This coverage pays the immediate medical expenses for injuries
sustained in
an accident. It also covers injuries that occur while entering or
leaving the insured aircraft. Most insurance companies offer medical
payments coverage on their liability policies. It is usually written in
limits ranging from $1,000 to $15,000 per person, and depending on the
policy, it may or may not cover the pilot. Because its purpose is to
pay for initial medical treatment, most policies have a time limit on
the medical services provided. It is considered "no-fault" insurance,
which means liability does not have to be established for medical
payments to be made. Carrying medical payments coverage on your policy
is a good idea because it covers the smaller injury claims without
filing a claim against your bodily injury liability coverage.
Additionally, it can pay expenses not covered by your personal health
insurance.
How much
should I insure the aircraft for?
The
important thing to remember is that almost all aviation insurance
policies are "stated" value policies. In other words, if you
decide to insure your aircraft for $100,000 and the deductible on the
policy is $100 and you experience a total loss of the aircraft, the
insurance company will pay you $99,900. So, it is extremely
important to insure your aircraft for its replacement cost.
So
ask yourself, if I had a total loss tomorrow, could I replace my
aircraft for what I have it insured for? Sources of current
aircraft value information are aircraft sales magazines and aircraft
price guides. These are only a guide however, since aircraft condition,
options, avionics and equipment can vary greatly. We should be able to
assist you in determining a range suitable for your aircraft. Finally,
remember aircraft physical damage coverage is usually written on an
"agreed value" basis. This means that you and the insurance company
will agree on what amount will be paid to you in the event of a total
loss.
What are the
problems of overinsuring or underinsuring an airplane?
When
you are determining the amount of hull insurance to purchase, keep the
market value in mind. If the insured value is lower than market value
and the aircraft is even slightly damaged, the insurer may decide to
pay you the entire insured value. The insurer could then repair the
damage, sell the aircraft and make a tidy profit. They can do this
because any aircraft declared a total loss belongs to the insurance
company and it is the insurance company's sole prerogative to decide if
an aircraft is a total loss. This would leave you without an airplane
and not enough money to replace it.
If the insured value is
higher than the market value, it could probably be repaired at a lower
cost than the value it is insured at, no matter how badly damaged your
aircraft is. This would mean that, rather than paying you off for the wreck in the field, the insurance company would repair it
because they would save money to do so. So you are left with an
aircraft with major damage history. The other negative is the
opportunity cost of the additional premium you have been paying to
insure the aircraft for the higher amount. This is not to say
that you can never insure an aircraft for more than the "blue book"
value. If you have special equipment installed, or the aircraft is in
better than average condition, you may be able to push for a higher
insured value. The insurance company will probably require you to
substantiate your request, however.
What changes
will increase the insured value of my aircraft?
Here are some prime examples:
-
An engine overhaul
-
New paint or interior
-
New avionics
-
Conversion/modification kits (i.e., engine, STOL)
There
are some limitations to increasing the aircraft's insured value. If you
purchased $10,000 worth of avionics, don't expect the insured value to
be increased by that amount. In this example, an insurance company may
only increase the value by $5,000 to $7,000.
How is the
insurance premium determined?
There
are four primary underwriting elements when it comes to airplane
insurance; pilot, airplane, purpose of use, and location. These
components are the first stops in the underwriting process. Each
insurance company uses different criteria to determine your premium.
Some of the most common factors include logged flight experience,
aircraft make and model, limits of coverage, whether the aircraft is
hangared, possessing an instrument rating, claims-free experience,
deductible, and how the aircraft is used. The insurance company then
applies prior experience in these various "classes" of business to
predict future results, and the premium is determined.
How can I
reduce my insurance costs?
Of course, it depends on your insurance company, but here are some
possible methods:
-
Obtain an instrument rating
-
Keep the aircraft in an enclosed hangar
-
Participate in a pilot proficiency program (i.e., the FAA's Wings
program)
-
Increase your flight time
-
Maintain a claim-free status for a certain period of time
Can I buy a
short-term policy?
Unfortunately,
no. A short-term policy does not exist. The
aviation
insurance industry only offers a 12 month annual policy.
Who can fly
the plane?
Only
those pilots that are specifically named on the policy or pilots that
meet all the requirements of the Open Pilot Warranty can fly the
aircraft and still be covered. Do not allow anyone to take dual
instruction in your aircraft that is not specifically approved by your
insurance company.
What is an
Open Pilot Warranty?
This
is a clause in the policy that lays out the requirements for pilots who
fly the aircraft other than those specifically named in the policy. The
fact that a pilot is either named on the policy or meets the
requirements of the open pilot warranty means that the policyholder has
coverage under the policy, provided that the pilot's use of the
airplane was within the scope of the policy. It does not necessarily
mean that the pilot is covered by the policy's liability provisions.
If I let
someone borrow my aircraft, what precautions should I take?
If
the borrower isn't a named pilot on your policy, make sure he/she meets
the requirements of your policy's open pilot warranty. This should be
confirmed by reviewing the individual's pilot logbook. In other words,
make sure the logged flight time meets the open pilot warranty. Also
verify that he/she has a current medical certificate and biennial
flight review.
Can I let
someone borrow the plane and charge them for using it?
This can be a very critical issue. Please read your insurance
policy in detail or check with us to verify what your policy
allows.
Insurance policies vary on this, but in general some companies do allow
for reimbursement of some costs associated with the flight, like gas
and oil. The broadest form of reimbursement allows for reimbursement so
long as no financial profit is made. This might not seem like a big
issue at first, but violating your policy with this issue will quickly
put you in jeopardy with your insurance company. Please
advise us
about any arrangements you may have for reimbursement so this can
properly be addressed with your insurance company.
Will my
policy cover me if I rent or borrow someone else’s airplane?
Most
policies provide liability coverage for the use of non-owned aircraft,
and depending on the company, it may or may not include physical damage
coverage, Be aware that non-owned coverage will only apply in certain
situations. With most policies, this coverage applies anytime you use a
non-owned aircraft, but only if you or you and your spouse are the
policyholder. It can also apply to your use of a non-owned aircraft
when your aircraft is down for maintenance. Because most people are
unaware that this type of coverage exists on their policy, take the
time to review this part of your policy. If you don't understand the
coverage and how it applies to you, contact us for assistance.
I am buying
an airplane with another person. Are there any special
considerations?
Insurance
is one of the critical aspects of co-ownership. It covers the cost of
the airplane if it’s damaged, destroyed or stolen. It protects your own
assets if your airplane causes damage to someone’s property. An
improperly insured aircraft can wipe out the life savings of all
co-owners and create a lifetime of problems. Remember that all
co-owners are liable for the actions of one. In addition, the
underwriters will rate the policy based on the qualifications of the
least experienced pilot flying the aircraft. If one of the partners is
a low time or transitional pilot for the aircraft desired there may
also be added training requirements imposed for that individual. The
experience of the least experienced pilot will also drive the
availability of higher liability limits for the policy
Can I buy a
plane and insure it as a student pilot?
Yes,
just make sure we have complete details and qualifications of both you
and your instructor or flight school. We cannot stress this point
enough. It is much easier to obtain aircraft insurance—and may save
some money—if the underwriters have all the details about you when we
contact them for a quote. Without this information, the insurance
company must make assumptions as to your qualifications, and this point
alone may cause them to get a declination, or a higher price.
Is my flight
instructor covered by my policy?
Airplane
insurance policies generally state that an “Insured” is the Named
Insured and anyone else that is flying the airplane with the Named
Insured’s permission, using the airplane for an approved use, and
either meets the Open Pilot Warranty or is a named approved pilot. The
definition of an “Insured” goes on to say: “If the named pilot or
person meeting the Open Pilot Warranty is in the business of commercial
aviation, and it specifically mentions flight instruction, then the
extension of insurance coverage to the pilot does not apply.”
First,
to make sure the airplane owner’s insurance is valid and intact we must
make sure the flight instructor is a named approved pilot. This only
works to the benefit of the airplane owner, but it is important so the
airplane owner’s insurance is not impaired in any way.
Second,
the Flight Instructor can obtain insurance protection by being named as
an Additional Insured on the airplane owner’s insurance. This only
extends liability insurance, though, and does not address the potential
of subrogation (legal recovery action) for physical damage (hull)
insurance by the insurance company.
There is another option,
keeping in mind that the instructor still needs to be a named approved
pilot on the owner’s airplane insurance unless meeting the Open Pilot
Warranty. If the owner does not wish to add the instructor as an
Additional Insured with a Waiver of Subrogation, or the instructor will
not reimburse the airplane owner for the expense of extended coverage,
then the next option is for the instructor to secure their own
insurance through a CFI non-owned insurance policy.
Where can I
fly my aircraft and be covered?
Most
aviation insurance companies include coverage for the United States,
Mexico, and Canada. A few companies exclude coverage for
operations in Alaska so be sure to check your policy or call us for
clarification. Also, if you are planning a trip to Mexico,
the
Mexican government requires proof of a separate liability policy issued
by a Mexican insurer. So in order to avoid complications and
other penalties possible under the laws of Mexico, including possible
impoundment of your aircraft, you will need to secure a separate
liability policy issued by a company licensed under the laws of
Mexico. We may be able to do this as an endorsement on your
current policy, or we can direct you to another company that can do
this for a reasonable fee.
Do I need a
separate policy for my hangar and its contents?
No,
in most cases you can add an endorsement to your aircraft policy to
include liability and contents coverage for your hangar for an
additional fee.
What happens
if I have a claim?
Provide
the insurance company with any documents that they request (aircraft
logbooks, pilot logbooks, estimates, photographs, sworn statements,
etc) as promptly as possible. You will be an integral part of the
claims settlement process, make sure you and your adjuster are
communicating regularly. The most frequent cause of a delay in the
claims settlement process is that the insurance company did not receive
previously requested documents from the insured.
What would
cause my claim to be denied?
Answer
all questions and requests for information truthfully and accurately. A
misleading statement or false information on an application could
result in a claim denial.
How does an
insurance company determine a “total loss”?
Some
companies declare the aircraft a total loss when the estimated cost of
repairs exceeds a certain percentage (i.e., 70%) of the insured value.
If a company does not use a percentage, they will usually declare an
aircraft a total loss when the estimated cost of repairs and the
aircraft salvage value (the damaged aircraft's value prior to repairs)
exceeds the insured value. After the aircraft has been declared a total
loss, the insurance company will pay the policyholder the insured
value, less any deductible. After payment has been made, the insurance
company will retain the salvage. An aircraft that has been stolen or
disappears will be considered a total loss if it is not found within a
specified period of time.
Will my rates
go up after a claim?
That
depends on many factors. We cannot adequately address all possible
scenarios here. It is fair to say however, that in most cases aircraft
insurance companies do not surcharge for a claim, especially if it was
not pilot related. The risk is either acceptable to them or not
acceptable to them. Premium surcharges are unlikely to do much in the
way of recovering aircraft accident claim costs. If a pilot shows
particularly bad judgement (e.g. runs out of fuel) then the insurance
company may be unwilling to renew or may offer coverage only at a much
higher premium level. It is also possible for the renewal premium to
increase even if the insurance company did not attach a claim surcharge
because aircraft insurance rates change all the time.
What is a
Breach of Warranty Endorsement?
A
lienholder on an aircraft may require this in addition to the right to
be paid directly in the event of a loss. Basically, the breach of
warranty endorsement provides that if you perform an act which voids
the obligation of the insurance company to pay on your behalf (such as
allowing non-approved pilots to operate it), the company will pay the
amount of the lien to the lienholder, but will require reimbursement
from you.
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