Welcome back to the Aviation Insurance Blog. Today will be broadly discussing one of the fundamental coverages in aircraft insurance: aircraft physical damage coverage.
This concept is what most commonly comes to mind when you think about aviation insurance. The definition of physical damage coverage is to provide coverage for direct loss to an aircraft that is sudden and accidental in nature or due to repeated exposure over time to an outside force. In simpler terms, physical damage coverage arises when metal is bent or material on the physical aircraft is damaged. There must be an occurrence for physical damage coverage to arise.
The loss of value over the use of an aircraft or other indirect losses do not qualify for this type of coverage. Mechanical warranty damage is also not included because it is not the result of an outside force.
This occurrence-based coverage can result in payment as high as the insured value, also known as the limit of insurance. Physical damage coverage is written differently for aviation insurance than it is for home or auto insurance. Most homes are written on some form of a replacement cost value basis. This means that if a fire or tornado were to damage your home, your insurance would pay the amount to replace your house. When it comes to our automobiles, they generally pay the actual cash value, which is the vehicle’s value minus the depreciation (what it’s worth today).
Aircraft insurance is a little bit different. It’s based on an agreed amount, also called a stated value. This insured value is agreed upon by the person buying insurance and the insurance company before the policy goes into effect. If there is a total loss, that amount stated is the amount that will be on the check. If an aircraft only incurs a partial loss, the insurance will just cover the cost of that damage unless the repair and salvage bids that the insured receive are very close to the total insured amount. In that case, the insurance company may elect to act as if it were a total loss, even though it was only partial.
Direct physical loss is usually written in one of two ways: “in motion” and “not in motion”. Not in motion is used when you just want protection on the aircraft while it’s in the hangar. In motion means the aircraft is protected under its own propulsion; however, you have to read that part of your policy carefully to determine the exact definition of “in motion”. Usually this means when the engine is spooling, it’s under its own propulsion. You may also see “not in flight” occasionally, which some carriers use to indicate that the plane is only covered on the ground. There is a different terminology associated with helicopters. Those policies will refer to “rotors not in motion”, “rotors in motion”, or “rotors not in motion excluding hover”.
Understanding whether your coverage is inflight or not in flight and knowing your insured value is essential. You will also likely have a deductible for this coverage. If there is a need for physical damage coverage, you will owe that amount towards recovering the loss. Some aircraft do have a zero deductible; however, that is much more uncommon.
Remember to always look carefully at your coverages and keep reading more of these posts to learn more about related topics in aviation insurance.
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