I was at the shop the other day and four airplanes were in for major structural damage repair. Two Cessna singles had their wings and tails crumpled when a very strong gust from a powerful thunderstorm blew the hangar door in. A Mooney was also in for storm damage repair. And a nearly new Mooney needed very major wing repair, or maybe even replacement of its wing, because a deer had bounded in front of it on landing.
Each of these was an absolute true act of God type of accident. No amount of pilot qualification or training, or conservative decision making, could have prevented the damage I saw. These incidents are the best reason I can think of to buy enough hull insurance for your airplane.
Approximately half of all aircraft insurance claims are of the “non-movement” variety, meaning the airplane was not in flight when the damage occurred. Most of these claims are caused by Mother Nature with her strong winds and hail. A few are caused by airplanes taxiing into each other, or another vehicle striking an airplane on the ramp. The point is that no matter how good a pilot you believe you are, or how unlikely you think your chances of having an accident, the statistics show that you have about a 50-50 shot that if your airplane is damaged you will not even be around.
The question is how much hull coverage should you buy for your airplane? The standard answer is to insure it for market value. That makes sense in normal times, but these are not normal times – I hope – in the used airplane market. Values on most models have plummeted since the recession hit in 2008, and in some instances sales are so slow it’s hard to identify that a market exists at whatever price.
A more reasonable question to ask about hull coverage is what is the airplane worth to you? That is what my insurance agent, Larry Rachlin, asks me each year. Larry has been an aircraft insurance agent for something like 60 years selling policies on everything from light singles to business jets, so he has seen it all.
Larry always tells me to imagine a big storm blows my airplane away. If that happens how much money do I want the insurance company to give me? Using storm damage keeps the emotional component out of the discussion because deep down none of us really believes we will have an in-flight accident.
I can look in the used airplane value guides and see an average selling price for Barons of similar vintage to mine. But that’s not very useful because after three decades of flying no two airplanes are really alike in their condition or equipment. Even if the value guide gets the average selling price perfect, that means half of the airplanes are better and more valuable, and the other half is worth less. That doesn’t describe my airplane.
So I buy enough coverage that I believe could come close to either repairing or replacing my airplane with all of its equipment, engine times, and so on. It’s going to cost me a lump to buy any level of hull coverage and if I increase coverage from the minimum it typically costs less per thousand dollars of coverage than simply buying the minimum.
At some point an insurance company will not sell you more coverage because of the fear of moral hazard. The moral hazard is that with too much coverage the airplane will be worth more destroyed than not. I think moral hazard is a small risk for airplane owners, but I do understand that temptation may arise if you have a $100,000 airplane insured for $1 million.
I have heard what I think is a strange concept that buying too much hull coverage may cause your airplane to be repaired when you really want it to be totaled. Let’s see, the insurance company pays to have your airplane returned to the same condition it was before the loss and that’s bad? I don’t get it. If you thought the repair was not done properly demand it be corrected. Or if you don’t want the airplane any longer, sell it. Either way the policy covered to return your airplane to its pre-damaged condition.
The real risk is buying too little hull coverage. I just saw a perfectly maintained Cessna 310 that had slid to a stop sans wheels. New propellers, engine inspection and maybe repair, plus the sheet metal damage totaled quickly into a bill higher than the hull coverage on the airplane. This owner had the choice of taking the agreed upon hull coverage amount and then trying to buy his airplane back for salvage value, and then paying to have it fixed, or seeing his airplane shipped off to the salvage yard. Not a happy ending.
Too little hull coverage can end up being almost as painful as no coverage at all.