Everyone has the potential to have a bad day when flying and, if you’re not careful, your insurance company can make a bad day worse. In fact, all you need to do is neglect your insurance for a few years, and then have a bad landing to find out what the definition of a totally bad day really is!
THE SET-UP
Running with a hull value that is below the replacement value of your airplane is risky business for one good reason: the insurance business is a business. Your insurance agent is dedicated to getting the best deal for his or her company, while making sure that you get every penny of what you signed up for. It may come as a surprise to some pilots, but this type of approach can get your plane totaled.
Example: On landing, your plane hits a raccoon on the runway, and starts to turn hard to the left. Despite your best efforts to recover, you end up spun around, stuck in a ditch. This accident has left your plane with some major damage. The total cost for repairs comes out to $35,000. You had the plane insured for the market value of $40,000, so you forward your estimates back to the insurance company and wait for repairs to start.
THE KNOCK-DOWN
A few days later, the envelope arrives from the insurance company. The envelope contains a settlement agreement, it informs you that you will be paid the full insured value of $40,000 … and the insurance company will take possession of your airplane. Result: You have just been totaled and the insurance company has made out like a bandit!
WHAT’S GOING ON?
The sum of the parts of the average airplane is actually worth more than the typical whole — especially if you underinsure it. The insurance company knows what’s in your plane and what the parts are worth and your agent knows that the insurance company could make $65,000 on the airframe and new avionics you recently installed. So, the agent has a choice to pay $35,000 to fix your plane, or settle with you for $40,000 and sell your airplane off in parts for $65,000. Translation: The insurance company can spend $35,000 or $15,000. Which would you choose?
THE DEFENSE
To avoid being totaled for a minor incident, you need to know what the fair market value of your airplane is — including the avionics. With this value in mind, keep your hull value where it belongs, not back where it was ten years ago when you bought it! Watch those additions to your avionics, since they can run up your hull value in a hurry. Finally, maintain your plane to avoid “gotcha” situations.
Case Study: A Bad Landing
Two pilots, who were long time partners in a Piper 140, decided to take a flight to a nearby airport for lunch. As they performed the preflight, the left main tire was found very low on air. The tire was refilled, the preflight completed, and the two partners launched for (what they thought would be) a $100 hamburger, but the estimate came out closer to $30,000.
As they landed, the plane lurched hard to the left, and ground looped. The fairly nice 140 went off the runway and into the gully on the side. The trip off the runway caused major damage to the plane, including a sudden stop to the engine, bent prop, damaged nose gear and firewall, a bent wing spar, and substantial damage to the left main landing gear.
Fortunately, the $30,000 estimate was pretty close to the value that the plane was insured for. The insurance company totaled the plane, paid off the owner and intends to put the plane up for bid in the near future in an effort to recover as much of their payout as they can.
The owners are out a nice plane — one that they were comfortable with and knew, having flown with for a good decade. The money they received will help to pay for another, similar plane, along with a contribution for their pocket. The insurance company will probably net $25,000 for the parts, making the company’s outlay a mere $5000 to settle the claim.
