Aircraft Insurance: From A to Z

June 1, 2022

The unstoppable growth of the global economy makes the aviation industry one of the most in-demand industries, even though the notorious pandemic did cut the global passenger traffic in half in just two years. Providing over 85 million jobs worldwide, carrying over 65 million metric tons of cargo annually, the world’s aircraft commercial fleet amounts to about 25,000 vehicles and is expected to increase up to 50,000 aircraft by 2040, not to count military and private aircraft.

Most private airships and all airline vehicles are insured, even despite the fact that neither federal nor state laws require aircraft insurance unless you want to use it for business purposes (then you have to purchase aircraft liability insurance at least).

  • There’s a catch, though: most FBOs – fixed-based operators, the organizations operating the airports and providing essential services of parking, fueling, maintenance, etc. – do require aircraft insurance, so chances are you won’t go far without it all the same. On top of that, aircraft insurance will be required for international flights.

Why? Well, no one wants to take chances when it comes to multi-million dollar damage and fatalities. The global annual insured losses from aviation disasters amount to hundreds of millions of dollars, with claims varying from collision & crash (30%) to travel issues (13%) to faulty maintenance (13%) to damaged goods (7%) and more.

That said, the range of aircraft insurance is so broad that at times it seems impossible to wrap your head around it. And while there’s some truth to that – we do think consulting with your insurance agent might be the best way to go – you can also start with learning the basics of aircraft insurance. It will take no longer than reading this piece to comprehend the information necessary for your further step, whether it is consulting with your insurance agent or a more in-depth studying of the issue.

Without any further ado, let’s dig deeper into the intricacies of aircraft insurance.

Goals and Types of Aircraft Insurance

Aircraft insurance is truly all-encompassing, which makes it hard to understand and no less hard to choose the right insurance for your private jet or business. Nevertheless, the three main purposes of aircraft insurance can be reduced to:

  • Covering the damage caused to the aircraft itself: hull insurance.
  • Covering the damage and injuries caused to the passengers: liability insurance.
  • Protecting the damage caused by the operation of the aircraft to third parties: third-party liability insurance.

The cost of liability insurance depends on multiple factors and therefore may vary from a few thousand dollars to hundreds of millions of dollars and even more, whereas insured indemnity limits for injuries may reach billions of dollars.

Why Do I Need Aircraft Insurance?

The main reason for acquiring aircraft insurance is on the very surface: you don’t want to take chances with costly vehicles and equipment, let alone people’s lives. Besides, potential claims or suits may not be covered (most likely won’t be covered) by your commercial general liability policy.

Sub-Types of Aircraft Insurance

When it comes to aircraft insurance, details do matter. Every case is specific and therefore it’s almost impossible to determine the type and amount of coverage you need without knowing the details of your case. Moreover, since insurers do want to beat the competition by offering something exclusive, there’s no single all-encompassing classification that would include all existing types of aircraft insurance. However, there are still several large groups of aircraft insurance that you are likely to meet on the market:

  • General aviation insurance. Whether you own a minuscule two-seater or a huge jet, a rotor-wing of fixed aircraft, or even a balloon, you can get the necessary coverage, from hull insurance to liability insurance to third-party liability insurance, in the forms of general aviation insurance. What’s more, you can get coverage for flying clubs, flying clubs, and ground-based risks. The nuances of the coverage will depend on your expertise, experience, previous claims, and more individual factors.
  • Aviation accident insurance. Even though traveling by plane is generally much safer than traveling by car, covering potential injuries of death of pilots and passengers is in some demand, though not as high as life insurance or general liability insurance.
  • Commercial aviation insurance. There’s no single airline in the U.S. that is not insured. As a business owner, you have to think through this issue in the first place. From low-cost airlines to cargo vehicles to major fleets, all types of aircraft can be insured right to the extent you need and want.
  • Rental aircraft insurance. No matter whether you are an experienced pilot or a beginner, some unfortunate occasions – for example, hard landing – may damage both the aircraft and someone else’s property. Owning rental aircraft insurance, however, would spare you from covering the losses from your own pocket.
  • Aerospace insurance. Each segment of aerospace, from engines of aircraft to ground services to airport contractors to air traffic control to airside liability, has a long list of challenges to address, almost all, if not all, of which can be covered with tailor-made aerospace insurance.
  • Space insurance. Elon Musk wouldn’t try to conquer Mars uninsured, would he? Space insurance covers all major risk factors associated with launches, operation, and maintenance of space equipment, including liability, in-orbit incentives, captive series, pre-launches, and more.
  • Drone insurance. From cheap drones to commercial vehicles, the range of drone insurance is all-encompassing, and not for nothing: 5 million drones in 2020 are no joke, but the number is expected to double by 2030, making drones one of the most popular types of aircraft for fun, research, and delivery. Drone insurance covers flight accidents, damage caused by lightning, fires, and explosions, as well as damage caused by third parties, theft, and unauthorized use.
  • Hangar insurance. Funnily enough, under certain circumstances, your hangar may become more valuable than the airship your store there. Luckily, hangar insurance is pretty common, so you can insure both the building and everything housed inside.

U.S. vs. International Flights

The geography may affect the choice of aircraft insurance. Local aircraft insurance will likely limit the geography of flights to the United States, Canada, and sometimes also the Bahamian Islands and part of Mexico which is close to the U.S. border, whereas international flights may include some additional requirements, such as international liability insurance.

  • Proof of insurance: Having proof of insurance on the aircraft may be obligatory, as it shows that your coverage applies to your particular aircraft and your particular flight.
  • International liability insurance: International flights may require standard worldwide insurance as well as specific requirements of some countries. EU countries, Hong Kong, Italy, and Mexico are known for such specific requirements, so you have to be especially careful when you are planning a flight to one of those countries.
  • Rental insurance: Even if you don’t own a particular vehicle, you may also be required to have rental aircraft insurance to cover possible liability claims should the accident happen.

How Much Does Aircraft Insurance Cost?

Dozens of factors may affect the price of aircraft insurance, among which are the size of the fleet, the characteristics of the aircraft – its type (private, business & commercial, aviation business, non-owned, etc.), size, and age – the conditions of maintenance, the experience of the pilot and the cabin crew, the history of claims, the number of annual flights, the starting and landing locations, etc.

Depending on the particular policy and the level of coverage, the annual premium may be as small as $1,000 to $2,000 for a small plane or as high as $250 million for a huge fleet. The numbers vary dramatically, but it’s worth noting that the insurer can spread the cost of the aircraft insurance across the insurance community, dividing some part of the risk between other insurers. Besides, several insurers may be involved, with one of them being the main insurer to handle a loss claim should the one occur.

How to Choose a Deductible for Aircraft Insurance?

Choosing a good policy isn’t only reduced to choosing the right type and amount of coverage – you also have to play with

  1. Your premium – the regular (usually annual) payment for your coverage.
  2. Your deductible – the amount you will have to pay from your pocket before your policy kicks in to cover the rest.

Now, the game of deductible and premium is a little bit unusual when it comes to aircraft insurance. Generally – in auto insurance, for example – choosing a higher deductible leads to a reduction in the premium, but that isn’t the case with aircraft insurance.

Why? Well, high deductibles only make sense for insurance companies when they deal with high-frequent claims – the more claims are filed, the more benefit can the insurer get from high deductibles – whereas the majority of aircraft claims are extremely rare. That said, it may be reasonable to increase the deductible for aircraft businesses owning a commercial general liability policy, as damage to third parties is relatively common.

Important Nuances to Pay Attention to When Choosing Your Coverage

  • Make sure to learn how things work. Insurance policies are underwritten by big companies and sold by smaller-scale insurance producers, which means you have, on the one hand, to choose a reliable company, and on the other hand, to select a knowledgeable insurer with a proven track record in the industry.
  • Try to get a well-balanced policy. Since aircraft are insured on an “agreed value” basis, which also determines the amount of your premium, it might be tempting to reduce the “agreed value” basis and thereby save on the premium. However, if you overdo the cutting, then your repairable vehicle may be declared a total loss. On the flip side, a too high “agreed value” may result in months of waiting until your badly damaged airship is rebuilt.
  • Review your policy once a year. Not reviewing your policy might feel good and liberating, but it may eventually lead to substantial financial losses. It would only be wise to review your policy annually, making sure your insurer does a good job and maybe even researching the market for better options.

aircraft inside

One Special Case of Aircraft Insurance: Aircraft Insurance Salvage

The term “salvage” means that the insurer is entitled to the aircraft after the one has been totaled (declared a total loss). In other words, your insurance company can become the owner of your jet after they have paid you the compensation as per your insurance policy.

The insurer is the one to decide on whether it would be financially reasonable to repair the damaged aircraft or declare it a total loss, become the owner of the vehicle, and sell it on an auction site. More often than not, an aircraft can be declared a total loss if the cost of repair equals the vehicle’s insured value.

The Best U.S. Aircraft Insurance Companies

Without a shadow of a doubt, it’s only you who should make the final decision about your aircraft insurance policy and the insurer to work with. There are dozens of remarkable aircraft insurance companies in the U.S., among which the most popular are BWI Fly, USAA, Assured Partners Aerospace, Wings, and EAA. But then again, there are so many peculiarities to every case that it’s not possible to recommend this or that particular insurer without knowing the requirements of the insured.

The Other Side of the Moon: How Much Does Aircraft Insurance Agents Make?

As a wrap-up, let’s just mention that you might also approach the whole thing from totally a different perspective. Aircraft insurance is a profitable business – the average aviation insurance broker makes about $70,000 a year, or almost $34 an hour – which opens up certain perspectives, including working as an individual agent or becoming a part of an aircraft insurance agency.

Aircraft Insurance: From A to Z 2

Oleksandr Rohovnin is a Content Marketer at Phonexa.com and an expert contributor to CoverExplore. His passion is digital marketing, innovative technologies, tech industries, and – above all – distilling vast amounts of complex information into engrossing narratives anyone can relate to. At CoverExplore, Oleksandr stokes passion for auto insurance and the automotive industry in general in every story he curates.

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