Aircraft insurance policies are NOT like automobile insurance policies with regard to valuing the insured asset. Aircraft insurance policies are 'stated value' policies, which means the insurance company will value your aircraft based upon the value stated in the policy, regardless of its actual or market value.
Your aircraft’s insured value should be reviewed annually at your insurance renewal and following aircraft upgrades including a new engine(s), avionics, or other equipment. It is also important to factor in the loan amount on the aircraft, if applicable. The bank will require that the insured value covers the loan amount, at a minimum, regardless of market value.
Reviewing publications such as Trade-A-Plane or other online resources such as Controller.com can help you determine an appropriate insured value. Keep in mind that the aircraft listed in the aircraft sales resources have not sold yet and they are simply asking prices. Accessing the ‘Aircraft Bluebook’ can also be a helpful resource for determining the aircraft value. Underwriters will review the ‘Aircraft Bluebook’ to determine if the insured value you are asking for is appropriate or not. If the value you are requesting is too far away from the ‘Aircraft Bluebook’ the underwriter will ask for justification. If the underwriter does ask for justification of the requested insured value, be ready to provide the following:
- Total time on the airframe
- Total time on the engine(s)
- Any upgrades (including the date of upgrade) that have been made to the aircraft, such as new paint, interior, upgraded avionics, upgraded or new engine(s)
The Importance of Determining an Accurate Insured Value
After a claim, the insurance company will use the stated value to determine whether the aircraft should be repaired or deemed a constructive total loss. Therefore, over-insuring or under-insuring your aircraft can have consequences:
- Over-Insuring: If the aircraft is over-insured, the carrier may be put in a position to fix a substantially damaged aircraft when you might have wanted the aircraft totaled. There is nothing in the policy that prevents the insurance company from repairing an aircraft, even if it would take months or years to complete the repairs. It is important to factor in that the cost of aircraft ownership continues while the aircraft is being repaired.
- Under-Insuring: If you under-insure your aircraft, the carrier may be put in a position to determine the aircraft is a constructive total loss and you will be left without enough money to replace the aircraft. And remember, the insurance company keeps the salvage if the aircraft is determined to be a constructive total loss.
How a Constructive Total Loss is Determined
A constructive total loss essentially means that the insurance company has determined that it is more economically viable to total your aircraft as opposed to repairing it. If the cost to repair the aircraft plus the salvage value of the aircraft meets or exceeds the insured value stated on the policy, the carrier will determine the aircraft to be a constructive total loss.
If you want to insure the aircraft above or below the aircrafts market value, it is recommended you discuss this with your aviation insurance broker to make sure you understand how this will impact you in the event of a loss. For assistance with determining the proper insured value of your aircraft, contact our team of aerospace experts.