Aircraft Physical Damage “Hull” Insurance: Protecting Your Aircraft

April 27, 2017 - Imagine if your aircraft could talk. What would it say? It might tell you that it enjoys a nice cross-country flight to new places and making new friends (aircraft), or to familiar places and seeing old friends. Your aircraft might tell you that it enjoys loops and rolls, or a nice short-field landing at that little grass strip you visit every Saturday morning for coffee and donuts with friends. If your aircraft has floats, you might be surprised to find that it enjoys a splash-in and being moored on a sandy beach to catch a few rays, or taking you to that remote fishing hole you love to frequent. Your aircraft may also tell you that it looks forward to the annual condition inspection and knows how important it is to stay in tip-top shape at all times. Your aircraft might share that it gets scared when a storm rolls in and it’s tied down at an airport hundreds of miles from home, or the uneasy feeling it gets whenever its fuel tank gets a little low. These are just a few of the things your aircraft might tell you if it could talk. And its expressed concern for its well-being is why you need to consider aircraft physical damage “hull” insurance.

Why HULL Insurance?

Please indulge me for a moment while I share a brief history lesson. Right after World War I, surplus military aircraft were offered for sale by the U.S. government. These aircraft were purchased for mail routes, barnstorming, flight training, movies, and a number of other uses. Many of these aircraft required financing from banks and those banks required the aircraft to be secured against loss. While numerous insurance companies offered all sorts of business insurance, those insurance companies had no knowledge or underwriting experience in aviation. Initially, insurance companies turned to marine insurance underwriters to establish pricing for insurance. These marine insurance underwriters referred to the physical damage insurance as hull insurance. The term stuck and is still in use by aviation insurance underwriters worldwide.

Liability versus Hull Insurance

Aircraft insurance policies have several components; however, there are essentially two primary insurance coverage elements: aircraft liability and aircraft physical damage insurance (“aircraft hull insurance”). While aircraft liability insurance provides indemnity for the aircraft owner/insured for their legal obligations for bodily injury and property damage, aircraft hull insurance provides financial reimbursement to the aircraft owner/insured for the “agreed” or “stated” value of the aircraft.

An aircraft insurance policy, unlike most automobile insurance policies, includes a stated or agreed value, which appears on the declarations page of the insurance policy. This is the amount the insurance company will pay in the event the aircraft is declared a total loss, less any applicable deductible. If the aircraft is repairable, the stated or agreed value will be the basis the insurance company will use to determine repairable versus total loss. Originally, insurance companies included deductibles in the insurance policy to ensure the aircraft owner/insured had a stake in care and protection of the aircraft. Today, most aviation insurance companies have eliminated deductibles; although deductibles will still be used on risks were the insurance company anticipates a higher likelihood for a loss or the possibility a loss could be more significant (e.g., a rotor-wing or aircraft equipped with floats).

What does aircraft hull insurance actually cover?

Aircraft hull insurance, as mentioned above, provides a specific amount of insurance protection that is agreed upon at the time the insurance policy starts. The amount of insurance can be amended during the term of the policy based on added or deleted equipment (e.g., adding new radios or removing floats), although an insurance company may continue insurance for things like floats while they are removed and placed in storage. Hull insurance typically covers all parts that would normally be affixed to the aircraft and the labor to repair the aircraft after incident. It may also include portable equipment (e.g., handheld radios and headsets) if stated in the policy.

What’s not covered by aircraft hull insurance?

There are three specifically excluded risk: depreciation, conversion (mechanics lien or other title encumbrance), and mechanical breakdown, including wear and tear. In the event of mechanical breakdown the component that fails would not be covered; however, any subsequent damage would be covered. For example: an exhaust valve breaks causing the engine to quit, which resulted in an off-airport landing and damage to the aircraft. The exhaust valve would not be covered; however, the resulting damage would be covered.

What are my options?

Aircraft owners/insureds do have options for aircraft hull insurance when they purchase an aircraft insurance policy: naked, ground not-in-motion (GNIM), ground and in-motion (not-in-flight), and all risks (flight, taxi, and ground). The more risks you cover, the more the aircraft hull insurance will cost. For example:

-          2010 Van’s RV-6A ($60,000 value), private pilot with 500 total hours and 250 hours in make and model:

• Naked = $0 annual premium
• GNIM = $500 annual premium
• Ground (not-in-flight) = $600 annual premium
• All risks = $750 annual premium

(This is not an actual insurance quote; rather, an illustration for the purpose of this article.)

What do I need to watch out for?

There are a few things aircraft owners/insureds need to watch out for.

• Under/Over Insurance: it is important that aircraft owners/insureds select an insured value that is what it would take to find the same aircraft of equal value. This is easier to do with standard category aircraft and experimental or light-sport category aircraft where there are a large number in existence. If the aircraft owner/insured under insures the aircraft hull insurance by selecting a value that is substantially below the actual value of the aircraft, the aircraft could be declared a total loss by the insurance company. Keep in mind when the insurance company pays a total loss they take ownership of the aircraft and may sell the salvage. Over insurance is the exact opposite. Here the aircraft owner/insured is insuring their aircraft at a value that is substantially above the real value of the aircraft. If a loss occurs and the aircraft is over insured the insurance company may endeavor to repair the insured aircraft which may also result in a substantial loss history and diminished value after repairs.
• Conditions: There is a very important part to the aircraft insurance policy that you don’t want to overlook: conditions. Aircraft owners/insureds need to carefully read their entire insurance policy, especially the conditions. The conditions section of the aircraft insurance policy addresses when and what the aircraft owners/insured must report to the insurance company, how and what the insurance company is responsible for in payment of a loss (including if the aircraft owner/insured does repairs themselves), how any disagreements between the aircraft owner/insured and the insurance company are resolved, and the responsibility of the aircraft owner/insured to cooperate and assist the insurance company to recover from others. Bottom-line: read the policy.

Aircraft hull insurance constitutes about 65-75 percent of the overall cost for an aircraft insurance policy so it makes sense to understand what aircraft insurance covers and how you can maximize your protection without wasting your money. Step one is to work with aviation insurance people who understand you, what you fly, and the type of flying you do. EAA members have a great resource with EAA Insurance Solutions administered by Falcon Insurance Agency, Inc., where you will be able to find the right aircraft insurance at the best price. If you would like to learn more about how EAA Insurance Solutions administered by Falcon Insurance Agency, Inc. can help you get the right insurance at the best price, give us a call at 866-647-4EAA (4322) or go online at www.EAA.org/insurance. One of the aviation insurance experts will be happy to help you with your aviation insurance needs.

Bob Mackey is senior vice president with Falcon Insurance Agency, Inc. the official administrators of EAA Insurance Solutions. Bob has been involved in the aviation insurance industry for over 35 years and he is an instrument-rated commercial pilot. If you have any comments about this article or if would like to see a specific aviation insurance topic addressed in a future article you may e-mail Bob at bmackey@falconinsurance.com