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Overview of Aviation Insurance

Overview of Aviation InsuranceWhether you’re an owner, operator, FBO, or pilot renting an aircraft, not knowing what kind of aviation insurance you have and need can be disastrous should an accident happen and you ever have to make a claim. Here’s a brief overview of the most popular types of aviation insurance, and things to keep in mind about your policy.

It’s important to note that not all insurance companies cover aircraft, so be sure you go with a reputable aviation insurance company. If you already have aircraft insurance, take this opportunity to review exactly what your policy does and does not cover.

General types of aviation insurance coverage

Passenger Liability Insurance. Passenger liability coverage is commonly offered to and utilized by large aircraft and commercial planes. The insurance offers liability for each passenger, also known as “per-seat coverage,” but usually with specific limits depending on the seats in the aircraft.

Public Liability Insurance. This is insurance coverage in the event that a plane or other aircraft crashes and damages people’s properties, such as houses or cars. While public liability insurance covers the settlement for damage, there is still the possibility that the plaintiff may sue if not satisfied with the settlement. Note that this coverage does not cover settlements in the event of the death of pilots and/or passengers, or the damage on the aircraft itself.

Combined Single Limit Insurance (Smooth or Level Limit). Combined single limit (CSL), often called "smooth" limit, is a combination of both public and passenger liability insurance. Injury and property damage coverage are combined under a single limit of liability per occurrence. For example, with a $1 million combined single limit liability, $1 million would be the total available to be paid to injured parties and property damaged combined. This form of insurance is typically more costly, but provides the broadest aviation insurance coverage.

Combined Single Limit Aircraft Liability Insurance (Sub-Limit). This aircraft insurance is similar to Combined Single Limit Insurance (Smooth or Level Limit coverage, but is limited as to what an injured passenger/person can recover. For example, a common passenger sub-limit coverage provides for $1 million combined, sub-limited to $100,000 per passenger.

Ground Risk Insurance Not In-Motion. This insurance protects the aircraft when it is not in-motion or moving condition. The coverage covers risks such as theft, fire, and vandalism.

In-Flight Insurance. As the name suggests, this insurance protects an aircraft from any damage when it is in motion, such as during parking, storing, landing, and flight.

Details of the policy

Like automotive or other types of insurance, policies differ regarding what they do and don’t cover. Here are some important things to ask and know about your policy.

Completely covered from all risk?
Some policies carry the language "all risk," which can be misleading to policyholders who mistakenly believe they are completely covered from "all risks." Confirm with the company if this is true or not as there are many types of losses not covered by an all risk policy.

Who is qualified to fly the plane?
Among common misconceptions is the assumption that any good pilot is qualified to fly your plane. In fact, every 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.

Are impaired pilots covered?
Not surprisingly, many aircraft insurance policies won't pay for bodily injury or property damage due to losses that occurred while the pilot was under the influence of a controlled substance. Not all policies contain this exclusion.

Are unearned premiums returned to you?
An unearned premium is the amount that will be returned to you if a total loss occurs during the policy period. Check to see that, in the event of 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.

Protection against breach of warranty?
Additionally, 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 required by the lender to purchase a provision called a breach of warranty or a lienholders interest endorsement.

Are legal defense costs included?
If a court case ensues due to an accident or other event, some insurance companies will subtract the cost of your defense fees from the total liability limit if you are sued. Others will pay your defense costs without cutting the amount of your liability limit.

Protection against damage depreciation
A plane that has never been damaged is usually worth more than one that has been damaged and repaired. If another party damages 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.

This article is a general overview of how aviation insurance policies work. If you already own aviation insurance, take some time now 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.

There are many types of policies in the aviation insurance market that affect the aftermarket (the addition of non-factory parts, accessories and upgrades). They include aviation general liability, aviation products liability, and hangarkeepers. Aviation insurance can be complicated and it is critical, so it's best to contact a licensed aviation insurance agent so that he or she can customize a plan to suit your needs and your aircraft.

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