The Best Time to Review Your Aircraft’s Insured Value Is Before an Accident

I once gave a client a recommendation that would cost them more money.

I told them the insured value of their aircraft was too low and recommended increasing it.

Nobody enjoys hearing that they should pay more for insurance. When the aircraft is operating normally and there is no claim in sight, increasing its insured value can feel unnecessary. It is easy to assume that the value selected several years ago is still close enough.

Fortunately, this client listened.

Later, the aircraft was involved in an accident. Afterward, the client was incredibly thankful that we had increased the insured value. Had we left it where it was, the financial outcome could have been very different.

That experience has always stayed with me because it illustrates an important point about aircraft insurance:

The best time to review your aircraft’s value is before an accident, not after one.

What does insured value mean?

When you purchase physical damage coverage for an aircraft, you select a hull value. This is the amount shown on the policy for the aircraft itself.

That number matters in both partial and total losses. It can influence the premium, the amount available following a covered total loss and, in some circumstances, whether it makes economic sense for the insurer to repair the aircraft.

The exact claim settlement will always depend on the policy wording, deductible, nature of the damage and the insurer’s assessment. However, one principle remains consistent: the value on the policy should be a reasonable reflection of the aircraft’s current value.

It should not simply be a number carried forward at every renewal without discussion.

Why aircraft owners become underinsured

Aircraft values do not remain static.

The market can change significantly over time. An aircraft purchased years ago may cost considerably more to replace today, even if its condition has remained largely the same.

Owners also invest in their aircraft. A new engine, updated avionics, a modern panel, new paint, a refurbished interior, floats or other equipment can materially change its value. If those improvements are not reflected in the insurance policy, the owner may be paying to protect an aircraft that no longer resembles the one originally insured.

Underinsurance can also happen gradually. A value that was reasonable when the policy was first written may be renewed year after year without anyone stopping to compare it with the current market.

Nothing looks wrong until there is a loss.

Underinsuring is not always saving money

It can be tempting to select a lower hull value because it may reduce the premium.

But lowering the value does not lower the cost of replacing the aircraft after a loss. It only changes the amount of protection purchased.

Saving a relatively small amount today can create a much larger financial gap later. If an aircraft is worth substantially more than the amount shown on the policy, the owner may not have enough insurance proceeds to purchase a comparable replacement following a covered total loss.

There can also be consequences during a partial loss. When repair costs become large relative to the insured value, the economics of repairing the aircraft can change. This is one reason an artificially low hull value may create a result the owner never intended.

The goal is not to choose the lowest value that an insurer will accept. The goal is to select a value that makes sense for the aircraft and the owner.

Can an aircraft be overinsured?

More coverage is not automatically better.

Insuring an aircraft for significantly more than its realistic value can result in unnecessary premium, and it does not necessarily guarantee that an owner will receive an inflated amount following a loss. It may also affect how a claim is handled if repairing the aircraft remains economically preferable to declaring it a total loss.

The objective is to avoid both extremes.

Your aircraft should not be insured for substantially less than it is worth, but selecting an unrealistic value simply to obtain a larger number on the policy is not a sound strategy either.

A reasonable, supportable value is the target.

When should you review the value?

At a minimum, the hull value should be considered at every renewal. It should also be reviewed whenever something occurs that may materially affect the aircraft’s value, including:

• Installing new avionics or completing a panel upgrade

• Overhauling or replacing the engine

• Completing major paint or interior work

• Adding floats, skis or other valuable equipment

• Restoring or substantially rebuilding the aircraft

• Seeing a significant change in the market for comparable aircraft

• Purchasing the aircraft at a price that differs from the value currently shown on the policy

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Owners should keep invoices, photographs, logbook entries and equipment lists that support improvements made to the aircraft. Good records can help establish why the value was adjusted and provide useful information if a claim occurs.

How to choose a reasonable value

Start by looking at comparable aircraft currently for sale, but do not rely on asking prices alone. Consider the aircraft’s year, total time, engine time, maintenance history, damage history, avionics, paint, interior, equipment and overall condition.

Then ask a practical question:

If this aircraft were lost tomorrow, what would it reasonably cost to purchase a comparable replacement?

The answer may not be exactly what you originally paid. It may also differ from the amount you have invested in the aircraft. Market value, purchase price and total investment are related, but they are not always identical.

This is where a knowledgeable aviation insurance broker can help. A broker who regularly works with similar aircraft can discuss whether the proposed value appears reasonable, explain how changing the value may affect the premium and approach the insurer when additional information is required.

Have the conversation before you need the coverage

My client was happy after the accident because we had already had the difficult conversation.

We did not wait until the aircraft was damaged to discover that the value was out of date. We reviewed it while there was still time to make a change.

That is what good insurance advice should do. It should identify a potential problem before it becomes a claim problem.

If you own an aircraft, take a moment to look at the hull value shown on your current policy. Ask yourself when it was last reviewed and whether it still reflects the aircraft you own today.

A few minutes spent reviewing that number now could make an enormous difference after an accident.

To review your aircraft insurance or request a no-obligation quote through the COPA Aviation Insurance Program, get an aircraft insurance quote from Covalen.

This article is for general information only. Coverage, valuation and claim settlement depend on the terms, conditions and exclusions of the applicable policy.

About the author

Caleb Winterburn is Vice President of Aviation Insurance at Covalen and has worked in aviation insurance since 2011. He is also a commercial airplane and helicopter pilot with a float rating, giving him firsthand insight into aircraft ownership, pilot training and the risks Canadian aviators face. Caleb works with aircraft owners, pilots, flying clubs and aviation businesses across Canada to help them understand their coverage and make informed insurance decisions.

To learn more or request a no-obligation quote, visit the COPA Aviation Insurance Program in Canada.