Insuring your aircraft for an appropriate value is probably one of the most important aspects of aviation insurance. But why is this so important and how can having too much or too little insurance on the aircraft value itself cause a problem? Well, lets look at both instances with a few examples.
Insuring for too little – this one is probably the easiest to understand, and believe it or not, underinsuring is likely more common than over insuring. But to illustrate, let’s use the example of an airplane worth $70,000 insured for only $50,000. With that aircraft insured for $50k, if there’s a claim for damage that reaches $35-$40k, there’s a decent chance that the airplane will be determined to be a total loss. If this happens, the insurance company writes you a check for $50,000 (the insured value) and then they own the airplane. But now what happens? How can you replace a $70,000 airplane with $50,000? That’s exactly the point. If someone underinsures, they run a serious risk of not being able to replace their aircraft in the event of a total loss.
Pilots sometimes underinsure their airplane to save a few dollars on insurance, but in many cases it’s because those periodic upgrades in avionics or engines, or even increases in market value go unchecked after a few years. We’ve previously wrote about aircraft values increasing in the marketplace due to overall demand increasing– so please make sure that at a minimum, you insure your aircraft for what it would take to replace it.
Insuring for too much – when compared to other forms of property insurance (home, auto, boat), aircraft insurance remains competitively affordable. So, the cost to insure a $50,000 airplane for $70,000 is likely not cost prohibitive. But while it’s not costly with insurance premiums, it can be very costly in the event of a significant damage claim. In this example, because the aircraft was insured for $70k, an insurance company could very well spend $45-50k in repairs. In the case, you are then left with an aircraft that was once worth $50k, but has had $45k in repairs and now has significant damage history – and we all know what damage history, especially significant damage history, can do for an airplane resell value.
Whether you own or rent, AOPA has the right insurance coverage to fit your budget and needs. AOPA Insurance Agency offers knowledgeable agents who can talk your language and understand your unique flying and insurance requirements. Visit www.aopainsurance.org for more information.