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Insurance Coverage Pitfalls

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In the unlikely event of an accident, are your interests properly protected by the Insurance Policy on your aircraft?

Since many owners rely on their management company to take care of negotiating and arranging insurance on their aircraft, they tend to know very little about their own insurance program.  A clear understanding of your insurance policy and the coverage limits, conditions and exclusions of that policy is imperative to properly managing your cost and transfer of risk.  Some coverage pitfalls to watch for:

 

Agreed Value 

It is important to pay attention to the declared value of the aircraft on your insurance policy.  Being “over insured” can be just as detrimental as being “under insured”.  Aircraft insurance is typically based on an “Agreed Value”.  This is defined as an amount that an insurance company agrees to insure the aircraft for at the start of an insurance period, and that it will pay if the aircraft is lost or destroyed.   If this value is less than the market value of the aircraft, then you will take a financial hit when replacing the aircraft.  If it is too high, not only are you spending more than necessary for your insurance premium, but in event of substantial damage the Insurance Company could elect to have the aircraft repaired when it really should be written off.  Over insuring an aircraft can also lead to delays while due diligence is performed to determine if repairs can be completed within the Agreed Value, delays due to complicated repairs for substantial damage, and financial loss due to depreciation of the aircraft when you try to sell it.

 

Total Loss

Be aware of what percentage the Insurance Company is prepared to consider a total loss.  For similar reasons above if your aircraft is substantially damaged, to avoid lengthy repairs and depreciated market value, it may be more desireable to have it written off.  Most policies have the right to repair the aircraft up to the Agreed Value.  Insurance Companies differ in where they are comfortable drawing the line.  Depreciations insurance is expensive and difficult to mediate.  An alternative consideration would be to request a clause for the a/c to be declared a total constructive loss at 75 or 80% of the Agreed Value.

 

Deductible 

Is there a deductible to be paid if your aircraft is damaged?  How much is it?  Did you know that most corporate level aircraft in Canada do not have a deductible?  Deductibles can be substantial and unexpected.  Be aware of the deductible and Who is responsible for paying this in event of a loss?

 

Territory

Not all policies include worldwide coverage for air travel.  Countries with political unrest or embargoes are often excluded.  Where is your aircraft flying and is that a covered territory under the Policy?

 

Pilots

Pilot clauses in an insurance policy can be written with conditions and restrictions or they can be very open ended with the management company being entirely responsible for the pilot approval.  This is often a reflection of the management company itself and a good indicator of their safety and loss record.  It is important that you are aware of any restrictions as they can lead to a claim denial or delays if the regular pilot is unable to fly the aircraft.

 

Customized Coverages

There are unique coverage requirements for aircraft used for corporate travel.   You and your guests don’t want to be stranded 100 miles from home because your aircraft experienced a hard landing.  Ensure that you have the proper limits and coverages to suit your corporation.  Trip Interruption, Host Liquor Liability, Contingent Employers Liability, Extra Expense and Baggage Liability are only a few that you want to be aware of to ensure that you have adequate coverage.

 

This is just a sampling of some of the coverage pitfalls and we haven’t even begun to scratch the surface on exclusions.  For more information contact us by phone: 1 866 603 6002 or by email: info@theaho.com

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