This could be a really short article to read because the answer is “It doesn’t.” TBO has no impact on insurance premiums, but remember premiums are only half of the story – claim payouts are the other half that also should be addressed. This question was brought to me by a pilot who owned the same aircraft for 12 years and realized that his aircraft engine would be at TBO soon. He wanted to know how that factor would impact his insurance premiums.
Engine TBO can be dependent upon many items: calendar time since last rebuild, tach hours, oil analysis, compressions, etc., but these items affect engine performance and arguably may affect safety. However, with insurance, TBO typically isn’t a consideration. Need proof of this? Check out the application you filled out for your insurance and look for the question about TBO and your engine. You won’t find a single question; insurance carriers don’t even ask. In short, TBO does not directly have any effect on insurance premiums, unless you adjust the value of the aircraft. For example, someone who just put in a new engine can easily justify an increased aircraft (hull) value, and there will be a premium associated with the increased value. Conversely, someone with an engine well past TBO might lower their insured aircraft value and save a few dollars on premium.
TBO is typically between you, your engine, and your mechanic. Unless the airworthiness certificate is invalidated, it shouldn’t have any insurance implications. Remember that TBO is a recommended time – just like your medical doctor recommends that you get this test or that once a year. Just like your waiter recommends you try a particular dish.
That’s all fine, but what about claim payouts? Well, here as you might imagine TBO can have a significant effect. Remember that insurance is designed to put your back in the condition immediately prior to a covered claim. What does this mean? It means that if you had a covered claim and had a brand new engine, you will likely receive the value of a new engine. It also means that if my aircraft is destroyed but had an engine at TBO, that’s what I’m going to receive. Insurance is to make you whole and you cannot better than you were before the incident…in fact, insurance policies describe this as “betterment.”
We could write a long article about betterment, but just remember, TBO doesn’t affect premiums, but does affect payouts. The solution, ensure your plane is insured for the proper value at each renewal.
Remember, too, that you can’t skip an annual. And if you certify that your airplane is airworthy because you’re up to date with replacing all life-limited parts, that’s got to be true. As long as your airplane is airworthy, for insurance purposes, you can go beyond recommended TBO and still be covered in case of an accident.
AOPA Insurance offers a choice of quality and comprehensive insurance policies from A rated companies with coverage options to fit all your aviation insurance needs. Visit our website for more information.