If you're the kind of person who prefers the excitement of flying your
own plane, reading insurance policies is probably not how you like to spend
your time. In the case of your auto insurance, you may know the amount of your
deductible and little else. This lack of awareness endures in our society in
part because auto policies tend to be fairly standard, and most "surprises"
arising from a claim may be fairly minor. But aviation insurance is
different.
Even
if you know considerably more about your auto insurance than the
average driver, don't assume your aviation policy works the same way.
Experts advise you know exactly what your policy covers, and more
importantly, what it does not cover.
A
Pilot's a Pilot?
Among
common misconceptions is the assumption that any good pilot is
qualified to fly your plane. In fact, each policy has specific rules about
who is qualified to fly the insured plane. To ensure your policy is not
voided, read it to learn exactly what is required to cover substitute
pilots, including a mechanic who makes a test flight. Some polices may
require any pilot in addition to the primary insured to be specifically
named on a policy. Other pilots may have to get the insurance company's
approval prior to taking the controls. Some polices have an open pilot
clause, which is a list of minimum qualifications for anyone who flies the
plane.
Unearned
Premiums
You might also want
to check to see whether after a total loss your unearned
hull insurance premium will be returned to you, or if it becomes fully
earned in the event of a total loss. In insurance terminology, an unearned
premium is the amount that will be returned to you if a total loss occurs
during the policy period. For example, if you purchased coverage for one
year and the plane is totaled in the sixth month, some policies will return
the unearned liability and hull portions of your premium because you no
longer have a plane to insure for the remaining six months. But not always.
Some insurers will only refund the unearned liability portion of your
premium.
Hull insurance can be fairly expensive. Check to see
if the policy language
indicates that a premium becomes fully earned (nonrefundable) in case of
total loss.
Impaired
Flyers
Some
aviation policies won't pay for bodily injury or property damage due to
losses in which the pilot was under the influence of a controlled substance.
Not all policies contain this exclusion.
"Breach of Warranty"
An
insurer may refuse to pay a claim if a policy's provisions were violated,
perhaps because the pilot was intoxicated or otherwise unqualified according
to the policy. If the plane was financed, the owner may be able - or
required by the lender - to purchase a provision called a breach of warranty
or a lienholders interest endorsement. This provision covers the outstanding
balance of the loan but no more. The insured will not receive any
compensation. But there's another fact you should know. If the insurance
company pays on a breach of warranty, it may decide to subrogate against its
own customer, the insured, for reimbursement of the claim it paid to the
lienholder.
Liability
Limits
The
key aspect of the liability limits on an aviation policy is to know
whether legal defense costs are included or separate from the liability
limits. Some companies will subtract the cost of your defense fees from the
total liability limit if you are sued due to an incident involving your
aircraft. Others will pay your defense costs without cutting the amount of
your liability limit. Again, reading your policy or asking your insurance
agent can help you decide if your coverage is adequate.
"All Risk" Isn't
Some
policies carry the language "all risk," which sometimes leads
policyholders to believe they are completely covered from "all risks." In
fact, this isn't true. There are many types of losses not covered by an all
risk policy, but we'll just discuss two here.
Damage
Depreciation - As you might imagine, a plane that has never been
damaged would fetch a higher price than a plane that has been damaged and
repaired. If your aircraft is damaged, even though it may be repaired to
your satisfaction, it won't ever be worth as much as if no damage had
occurred. If another party damaged your plane and has insurance, that
insurance company is obligated to compensate you for all losses due to
damage depreciation. Unfortunately, your own insurer is not under the same
obligation to compensate you for damage depreciation.
Lost
Use - Obviously, if your plane is being repaired, you won't be able to
fly it. Depending on how you use the aircraft, whether for business or
pleasure, this may or may not present a significant loss. But no matter what
the size of the loss, an all risk policy won't compensate you for
it.
Some
companies offer a provision called "Extra Expense for Substitute
Aircraft." This coverage is not designed to pay all expenses due to loss of
use, but it can help offset some of the financial impact.
This
is only a partial explanation of the way aviation policies work. If you
are in the market for a policy, you may want to educate yourself about the
differences between the policies you are considering. If you already own
aviation insurance, now might be a good time to read your policy closely,
before any potential mishaps occur. This can help you to avoid surprises and
decide if your policy is the best one for your needs.
© 2003
Emerald Publications
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