June 1, 2016 - You should only buy insurance when you need insurance, but how do you know when you need insurance? Many EAA members take on the challenge of building an airplane without considering whether or not their airplane project is protected (insured). This isn’t surprising because there’s a lot involved in getting ready to build an airplane, like determining which airplane to build, making sure you have the tools and skills, figuring out how much the airplane will cost, securing a location to build your airplane, and the list goes on. Insurance doesn’t immediately come to mind. And even when it does, builders assume their hangar or home owner’s policy covers the risk of loss.
Let’s explore project insurance and what risk management steps you should consider when getting ready to build an airplane. I like to use the following risk management formula:
Risk management equals risk analysis plus risk mitigation plus risk financing
Risk analysis is simply figuring out what might go wrong. What could happen that might cause injury to someone, damage to someone’s property, or damage to the airplane project? List all of the things that might happen and what the results might be. Here are few examples:
- You get hurt working on the airplane project
- Someone gets hurt when they come to see your airplane project
- A fire occurs damaging your workspace and/or your project, etc.
Try to include all of the possible things you can think of - even if they may be far-fetched.
The next step is risk mitigation, or what can be done to prevent or reduce the likelihood of bad things happening. This includes transferring the risk elsewhere. Next to each item you identified above that might go wrong, write down what you might do to mitigate them. For example:
- Have proper safety equipment
- Ensure visitors wear safety equipment
- Keep shop clean and safe
- Have proper fire extinguishers, fire-safe cabinet for flammables, etc.
When it comes to transferring risk, where can you redirect the risk, (i.e. liability risks for injury to others or damage to property owned by others). If you are building your airplane at home your homeowners insurance may cover this.
Lastly, consider risk financing, in other words insurance. What kinds of insurance do you need or have that would help offset the economic impact of a loss? Assuming you have some form of medical insurance, does it protect you for injury to yourself while building an airplane? If you are building your airplane in a shop in your home or garage, will your homeowners insurance cover a loss such as injury to someone other than you or damage to property that belongs to someone else? You’ll want to check with your health insurance plan and homeowners insurance agent to get these answers.
If you’re building in a hangar or a shop away from your home, you’ll need to consider purchasing separate liability insurance as a part of the project insurance policy because your homeowners insurance will very likely not extend to these locations. But what about your airplane project itself? This you can handle with aircraft project insurance to insure the value of project materials, and you can also add liability insurance if you need it.
Project insurance does not cover your aircraft project once you begin moving the aircraft under its own power, such as taxi test to check ground handling, braking, first flight, etc. If you are at the point where you are ready for this you will need to convert or replace your aircraft project insurance with aircraft insurance, including both liability insurance and physical damage insurance. This is an easy process just don’t wait until the last minute.
The EAA Aircraft Insurance Plan has a special line of affordable insurance just for airplane projects, designed especially for EAA members. All you need to do is submit an online quote request or call 866-647-4322 and talk directly to one of the EAA plan specialists. Either way, make sure to consider the potential risks and the solutions.
Have fun building with the peace of mind that you have considered all the risks and reduced the possibility of something bad happening. But if something does, you and your airplane project are protected.
Happy flying - I mean happy building!
If you would like to know more about the EAA Aircraft Insurance Plan, or if you would like to know more about finding the right insurance for the type of flying you do, call 866-647-4322, or complete the online quote request form. When you insure your airplane through the EAA Aircraft Insurance Plan you’re helping support EAA Member Safety Programs and EAA Youth Education
Bob Mackey is senior vice president with Falcon Insurance Agency, the official administrators of EAA Insurance Solutions. If you have any comments about this article or if would like to see a specific aviation insurance topic addressed in a future article, send him an e-mail.