Aviation Insurance
Six steps to buying the right policy
By Stuart Hope - August 1, 2009
On a purchase-satisfaction scale of one to 10, aviation insurance fails to register even a one for most buyers. And no wonder. There’s simply nothing sexy about buying a stack of papers that promise to pay for a loss you hope won’t occur and which, in fact, is highly unlikely to ever happen.
As such, many business jet owners make the potentially devastating mistake of focusing minimum attention on this vital component of their financial protection system. Given that aviation risk ranks as one of the largest financial exposures an aircraft owner faces, this can have disastrous consequences.
Consider the legal ramifications of the recent Learjet 60 accident in Columbia, S.C., which resulted in the deaths of four of the six people on board, including both pilots, and you begin to realize what’s at stake. One of the survivors, who suffered second- and third-degree burns, is seeking unspecified punitive damages and compensation for pain and suffering, lost earnings, property damage and past and future medical and health-related expenses. Defendants in the suit include the aircraft owner, the aircraft operator, the tire manufacturer and the aircraft manufacturer. Suits by the other survivor and by the estates of those who died could follow.
“A lot of people don’t understand what’s in their insurance policy until they need it–and then it’s too late,” said Mike Nichols, the National Business Aviation Association’s vice president for operations, education and economics. “Knowing what coverage you have is key.”
Here is a six-step process to help guide you in the purchase of your business aviation insurance:
1. Understand what you’re buying. You need to have an understanding of the state of the business aviation insurance market. Premiums are at an all-time low and underwriting flexibility is at an all-time high. This is valuable information to have when discussing insurance renewal with your broker. You can find other important information on the National Business Aviation Association’s Web site (www.nbaa.org), in the Insurance and Risk Management section, which includes articles on topics such as Additional Insureds, Using Independent Contractor Pilots and Non-Owned Aircraft Liability Coverage.
2. Seek advice on the proper liability-coverage limit. This is probably the most important decision you’ll make, as it presents the highest catastrophic-loss potential. How much coverage is enough? Unfortunately, no easy answers apply. But there are questions you can ask yourself to help determine a reasonable amount. What is the average passenger load and passenger composition? If most flights involve just one or two passengers or the passengers are primarily employees (where workers’ compensation insurance may protect you), you might be able to live with a lower liability limit. However, if the average passenger load is four or five or the passengers are primarily non-employee guests, you’d be wise to look at higher liability limits. Other factors to consider include the number of seats in the aircraft, the benchmark average liability limit for similar-category aircraft and any umbrella policy you may have.
Share This Article With Others