Avoid the Dangers of Being Underinsured

The insurance company is protected. Are you?

If you have a pristine airplane with a low-time engine, lots of modifications, and above-average avionics, then there is a good chance that your airplane is worth more than your insurance company is willing to insure it for. As a fellow airplane owner I have first-hand experience with this problem that I can help you solve. First let me start by explaining why you should never under-insure your airplane.

Lesson #1: Get a Professional Broker

In 1981  I co-owned a Cessna 170 with a student pilot who flipped the airplane over on landing. The airplane was insured for $15,000 and the repair estimate came to $14,975. The insurance company wanted to total the aircraft but my exceptionally sharp insurance broker, Pat Costello of Costello Insurance Associates, read the fine print in the policy and alertly pointed out that by definition, a total loss was one where the repair estimate exceeded the insured value. The insurance company reluctantly paid to repair our airplane.

Lesson #2: Look for the Constructive Total Loss Clause

Nowadays insurance companies have added the term Constructive Total Loss to the policy. If the loss exceeds a percentage of the agreed value, typically 75%, then the insurance company can treat it as a total loss.

When you purchase aircraft insurance, the amount of hull insurance is an agreed value between you and the insurance company. So if your aircraft is worth $100,000 and you insure it for $75,000 then a loss that does just over $56,000 in damage would allow the
insurance company to use the constructive total loss clause to pay you $75,000 and take the airplane. But with $75,000 you couldn’t replace your airplane.

Lesson #3: Insurance Companies Don’t Recognize Prime Condition Aircraft

If you have an average airplane and insure it for full value, then you likely won’t have trouble getting enough coverage for your airplane. The insurance companies look at the printed price guides and have a reasonable idea of what an average airplane might be worth. But the average 1977 Cessna 180 doesn’t have an instrument panel like the one shown above and the insurance company was not willing to insure my airplane for it’s true value without a certified appraisal. So I hired an NAAA Senior Certified Appraiser to find the actual value of the airplane. The insurance company was satisfy and insured the airplane for it’s full value.

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