Probably the most consistent question we get from our clients involves how much insurance they should carry on their aircraft. Most owners have a general idea of their plane’s value based on similar planes they have seen for sale, but it may take an appraisal to be exact, especially with all the new panel upgrades and avionics available today. In addition, it is difficult to put a price on the intrinsic value of the plane to the owner as compared to an objective market value.
When you are insuring the hull for flight or ground storage, what would it take to replace it with a similar plane? Most insurance companies will normally insure a plane on an “Insured Value” or “Agreed Value” basis. This means you and they agree on an amount in the event of a ‘total’ or ‘constructive total’ loss. This is different from automobile insurance which uses “actual cash value,” where the replacement is determined by the value of the auto at the time of the loss (and usually includes taking many factors into consideration such as mileage and overall condition). In other words, unlike auto insurance, aircraft hull insurance is based on a fixed amount that is established between the insured and the company when the policy is written.
Another question we get is “what is the difference between a total loss and a ‘constructive’ total loss?” A company can declare a ‘constructive total loss’ when the cost of repairs added to the salvage value of your plane is equal to, or exceeds, the insured value that is stated on your policy. The cost to repair the aircraft when there is damage to the airframe can be high. We normally see the insurance companies applying the “constructive total loss” rule when an aircraft is damaged over 50% of its insured value. However, this can vary with the type of damage and repair. In some cases the company may still choose to repair a plane that is 75% damaged.
It is best to insure close to value so you don’t come up short if replacing the plane. The insurance cost to increase the hull value for each $5,000 is usually very small in comparison. Underinsuring a plane is usually not a good idea and it lowers the point at which a ‘constructive total loss’ can be applied. If you have done any midterm upgrades it may be time to increase the Agreed Value.
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DISCLAIMER: These Blog’s, (articles) are provided only as a reference. It is up to the insured to decide what his or her aircraft should be insured for.