aircraft insurance question

[mattaxelrod]

When taking out or renewing an ownership policy, they ask what value would I like to insure the plane? I'm comfused how this works. Assuming that a couple thousand in hull value isn't going to change the rate all that much, what's to stop me from inflating the plane's value. Is it an honor system kind of thing? Should I routinely add a thousand or two each year that I renew to reflect appreciation?

Matt

 

[Ed Guthrie]

When taking out or renewing an ownership policy, they ask what value would I like to insure the plane? I'm comfused how this works. Assuming that a couple thousand in hull value isn't going to change the rate all that much, what's to stop me from inflating the plane's value. Is it an honor system kind of thing? Should I routinely add a thousand or two each year that I renew to reflect appreciation?Matt

The process is about as far from an honor system as you could get. Assuming a loss the insurance company has two limits to their payout. First is the policy limit--hit the limit and they need not pay any more. Worse yet, at that point they have the option to total the aircraft, taking possession of the airframe and selling it for scrap. If you failed to state sufficient hull value the company makes money on the deal, so they have a motivation to declare a total loss. For example, assume you have a $100k aircraft insured for $40k. You have a gear collapse on landing. The company looks at it and says, "It's totaled, here's your check for $40k." Even if the damage was a mere $10k the company is financially motivated to declare a total since they pay out $40k, pay an additional $10k to repair, sell the airframe for $100k, and reap a $50k profit for the effort. Not a bad return for collecting a $2000 premium and waiting for an accident. On the other extreme you over insure, declaring a hull value that is inflated. In that case the insurance company is more motivated to repair rather than total, but you are paying premiums for a payout you'll never receive.

Most folks try to insure for bluebook value.

 

[Ken Ibold]

If you set the value low to reduce premiums, an incident may leave you with a totaled airplane and you lose money. If you set the value high, they may ask you why the airplane is worth so much. If they don't (or if you convince them it is), your airplane could suffer substantially more damage without being totaled. The more extensive the repaired damage, the less it's worth on resale, so it would be easy to see how you would end up with have an airplane you WISH would have been totaled by the ins co.

It's not a bad idea to go back every year or two at renewal and develop a new stated value.

 

[mattaxelrod]

Interesting. So the two extremes (overstating and understating hull value) both work as conflicting forces to motivate the owner to state a logical value.

I'm pretty much in the Vref ballpark with my policy anyway.

 

[gismo]

Interesting. So the two extremes (overstating and understating hull value) both work as conflicting forces to motivate the owner to state a logical value.

I'm pretty much in the Vref ballpark with my policy anyway.

IMO the worst part of this methodology is that you stand to lose no matter how well you pick your hull value and there's no opportunity to self insure a part of it. The good side is that if you insure for more than you owe, you can't get upside down as a result of an accident like you can in a car. I have tried to keep my declared value between the wholesale and retail price for a similar airplane, but even that is hard to nail down. Vref is generally closer to retail (what you'd pay a broker) but IMO it's accuracy diminishes if you stray very far from the average. IOW if you have a cream puff or derelict, Vref probably won't be close.

 

[poadeleted20]

I'm pretty much in the Vref ballpark with my policy anyway.

I use Vref as my benchmark, and send a copy of the Vref sheet to the insurance company as justification for higher-than-bluebook valuation. My experience in 27 years of ownership of 4 different aircraft is that Vref is a much better estimation of how much it will cost to replace a plane with another just like it (including prebuys, trips to look, upgrading to match, etc), while blue-book is a better estimate of how much you can get for your plane on the open market. My insurers have always accepted Vref without question, although higher hull does mean slightly higher premiums.