TAKE COMMAND OF YOUR COVERAGE: AIRCRAFT INSURANCE TIPS FOR PILOTS

David:[00:00:09]If somebody sues me and my insurance isn’t enough, you know, the LLC
will provide that corporate veil, so to speak, to protect me. And, you know, that’s a
misconception in aviation because if you’re flying the plane, You’re the pilot in command,
you’re going to have personal liability and the LLC will not protect you for that.
Tim:[00:01:05]Well welcome back to the Pilot Money podcast folks, we’re excited to have
you here and today we’ve got another engaging interview episode. And we are going to be
talking about how to properly insure an airplane, so if you own an aircraft, if you want to own
an aircraft, or if you rent an aircraft, insurance is something that you need to know about.
How to avoid leaving that big beautiful net worth that you’ve worked so hard to acquire. How
to avoid leaving that exposed in the way of liability, so that is what we will be talking about
later, a lot to cover before we get to the interview.
[00:01:45]So, if you are new here, welcome, glad to have you along. My name is Timothy P
Pope, I’m your host, I’m a certified financial planner that specializes in the planning needs of
the professional pilot. That’s what we talk about on this show, we also run a boutique, a
financial planning practice, serving the same. Recently, I was talking to someone about this,
you know, I should probably get back to the business at hand on the show.
[00:02:10]Typically we talk about how to earn money, how to invest money, how to save
money well, tax efficiency, just in general how to take advantage of this awesome career as
a professional pilot in a smart way. And I was thinking this because the last couple of
episodes have been surrounding how to acquire an aircraft. We talked to an aircraft owner
and talked about the cost beyond the purchase. And the person I was talking to said hey you
know what, you are talking to pilots, right? And of course they want to know how to purchase
an aircraft and how to do it well.
[00:02:42]And the things that they should consider when thinking about aircraft ownership
and you know what? Your responses to those episodes, the feedback that you’ve given me
have been great, so thank you for that. In fact there’s some questions that have come in
surrounding how to think about aircraft ownership in the lens of a financial plan. So we
actually, there are some Q&A episodes that I need to put together. Those Q&A’s have been
coming in. I need to address those and to do another episode. Looking at the Q4 content
calendar is packed, I mean there’s a lot going on. There’s a lot to talk about. Right, so open
enrollment, that season is right around the corner for most carriers.
[00:03:21]Sp we’re certainly going to want to talk about how you guys can maximize your
benefits. Avoid leaving money on the table, just through organizing benefits between
spouses. We’ve seen five figure savings per year. Okay, that’s just on open enrollment, that’s
crazy. So that’s important, so pay attention. And the fact is that the benefit elections that you
sign up for, may not be the same for the guy next to you.
[00:03:47]Okay, so pay attention to your situation, there. Our tag is happening this week and
that demisses a hiring slow down. So of course I wanna take a minute and talk to those guys
and girls going through a military transition. With the goal ending in the 121 world or in
business aviation. So we’ll talk to them in a later episode. Also the Fed cut rates the other
week. Okay, so this is gonna have to rip a fax, first you’re probably gonna see it in your short
term savings. Right so your emergency fund, where over the past couple of years we’ve
enjoyed four to five percent. So you could expect those rates to go down, but you could also
expect the interest rate on mortgages to go down in anticipation of the Fed cutting rates. We
saw rates decrease over the summer, maybe there’s more in store.
[00:04:36]And so, you know, is it time for you to move in base? We will talk about that, it’s all
coming up later. In this quarter, these kinds of conversations close out the year. But first I do
have a big announcement for the podcast and the big announcement is this: We are going to
change the name of The Pilot Money podcast. The show is staying the same, the content is
staying the same, the structure, all of that is staying the same. The only thing that’s changing
at this point is the name. And we’re not quite certain what the new name is going to be, so
we’d love to hear from you. What do you think we should change the name of the show to?
Send us an email, pilotmoneypodcast@ceterainvesters.com.
[00:05:19]Probably the obvious question that you’re asking right now is: Tim why are you
changing the name of the Pilot Money podcast? It’s a great name, and I agree with you it is a
great name. But the reason we’re changing the name is quite simple, we’d have to
trademark the name. And there are a few folks with substantially similar names or identical
names, ahead of us in the trade marking process. So, you know it was easy enough for us to
say well, we’re getting close to the end of season one. Let’s just go ahead and change the
name, so keep your eyes and ears out. We will have a name change soon.
[00:05:53]The fun part of this is that you guys get to be involved. So, if you have a
suggestion for the new name of what the show should be, send me an email
pilotmoneypodcast@ceterainvesters.com. That’s cetera, investor dot com. I will make an
announcement with the new name when we decide. Throw a name in the hat, let’s see if it
wins. With that, let’s get into today’s episode, again how to properly insure your airplane.
Things you definitely should be doing and then things to avoid. And because this is an
interview episode, be sure to stick around for the debrief where I’m going to be talking about
the top three things that I want you to take away from today’s episode.
[00:06:34] David, welcome to the pilot money podcast.
David:[00:06:36]Thank you very much for having me, Tim.
Tim:[00:06:38]So David, I’m excited to be talking to you today. So you are a partner in
Schrager Hampson aviation insurance group. And the past couple of episodes, we’ve been
having conversations about acquiring aircraft. We talked to aircraft owners, and I think we
would be remiss not to have insurance as part of the conversation. So excited for what we
discussed today.
David:[00:07:01]Yeah, thank you. I’m excited to talk to you about these topics as well.
Tim:[00:07:06]Well, let’s start the way that all of our guests we always ask. So we’d love to
hear about your aviation background and then what you’re up to today.
David:[00:07:13]My aviation background started When I was very young, I always loved
airplanes and everything aviation for as long as I can remember, since I was a young boy
and, we used to make several trips to Florida every year because I had, grandparents on
both sides of my family that lived down there. Both of my parents were from Florida and we
lived up in New Hampshire. So we would just fly commercial airlines, but even just flying
commercially just fascinated me. You could get on this amazing flying machine and it would
transport you to a different place and I just became fascinated with it. As I grew up, I started
reading various flying magazines, and I always wanted to stop at any general aviation airport
that we drove past to watch airplanes fly. I just had that passion, that love for aviation, and I
never had the opportunity to take flying lessons when I was younger.
[00:07:59]I didn’t come from an aviation family, didn’t have anyone else that flew, so I didn’t
get into it at that point, and my career went off in a different direction. Then, I got back into
aviation, when I was in my early 30s, my wife found a picture of me in some aviation gear
from when I was younger, and for one of my birthdays, she got me a gift certificate for three
flying lessons, and that kind of reignited the passion.
Tim:[00:08:25]Yeah.
David:[00:08:26]And the rest is history, I started taking flying lessons, and I was already
working in general insurance, but, you know, I tried to find a way to combine my passion for
aviation with my insurance experience, you know, much similar to what you’ve done, Tim, in
your practice, and, which I think is awesome, and I, you know, specialized, and I, I started
prospecting some accounts at the time, with my prior employer, and I came across this
agency, owned by Dan Schrager that a lot of potential prospects are with already in
Massachusetts, so I basically just cold called Dan Schrager and asked him if he was
interested in selling his business, and he was, and it was one of those things where the
timing was right, and we worked out a deal, and it’s been great.
[00:09:08]Dan’s remained part of the business. Even after the sale my parents are partners
in the business as well. My dad came from a long insurance career as an executive at a
large, global insurance brokerage firm. And, you know, my parents believed in me enough
invest as well and, you know, with their support we’re able to buy this business and grow it
over nine and a half years now,
Tim:[00:09:29]Man, that’s phenomenal. So the passion was there. Which I feel like, you
know, for a lot of aviators, it’s just you have it or you don’t. The business acumen and
expertise of insurance is there. And then you just sought the opportunity to combine both of
them so you could live your best life. I saw a post where your office is hiring, which made me
a little jealous because in the job description it was along the lines of like, hey, sit in your
office and watch airplanes, watch the runway. Airplanes take off and land all day, as you
helped owners with their insurance. That’s pretty cool.
David:[00:10:03]That’s where our office is located right on the airport. On the second floor of
a building looking at the runways, it actually happens to be a small airport that I used to visit
frequently when I was younger to watch airplanes. It’s kind of cool to have an office there
now.
Tim:[00:10:15]That is fantastic. That is quite awesome, I’d say. David, can you tell us what
trends you are seeing in the aviation insurance space right now?
David:[00:10:25]So, the good news is that rates are stabilizing. Now, by stabilizing I mean
that, we’re still seeing some increases in general, but we’re seeing increases more in line
with inflation. And that’s good news because the last, gosh, about five years, I feel like all
I’ve been doing is giving bad news to clients because, we’ve gone through a period of what
we call a hard market insurance where not only rates have been going up but underwriting
has been tightening as well, at the same time.
Tim: [00:10:54]Why is underwriting maintaining?
David:[00:10:55]The reason for that is because we went through a period of time that now
it’s hard to even remember those good times, but between 2006 and, like, 2018 where it was
a very soft market, rates were going down, underwriting got looser, and there was also a
doubling of aviation insurers in the marketplace during that period of time as well. So it was
many years of rates being depressed, definitely not keeping up with inflation and insurers
lost, as a whole, collectively, they lost millions of dollars of losses, not more than what
premiums were. So for example, in that period of time I mentioned, I believe the number was
something like 685 million of losses that they sustained.
[00:11:37]So there’s a lot to make up for. And the market started to turn in 2019 and got
worse in 20 and 21, 20 was brutal because we were in the midst of the pandemic and, you
know, I had to deliver a particular from our commercial clients and pretty brutal renewal
increases. When they were, you know, everyone was struggling with shutdowns and no one
knew what was going to happen in the world. So that was a really tough year, but then they
continued in 21, 22, 23 is a little bit better. In 24, we’ve really seen things start to level off
and, insurers are, rates are at a better place. Probably, more in line with where they should
be. I don’t know that we’ll see rates as low as they were before.
[00:12:17]I mean, to give you an example, Tim, I had a client that flew a jet and it had a 4
million haul, insured haul value, and he had, 20 million dollars of liability, and he was paying
a premium of, I don’t know, like 11, dollars, with those sort of values. There was, no way that
premium like that could be, now he’s paying, I think, close to 40,000, but that premium is
enough to think of one loss and how many you’d have to have to make up, so that was just
some of the sort of, of, of premiums we saw at that point, but, I don’t think we’re going to see
those again, at least anytime in the foreseeable future.
[00:12:47]But I do think they’ve gotten to a point where insurers can cover the claims and
maybe expected to make a profit, which, no one likes to hear insurance companies making
profit, but, they’re profit making companies. Most of them are publicly traded and they have a
fiduciary obligation to present a return to their shareholders. And, we don’t have any
government. Subsidized aviation insurance pools and I don’t think political capital for
politicians to lobby for that. I don’t think that would be necessarily popular. So I don’t think
we’re going to ever see that. So we need to have insurers that make some profit so that they
stay in the market.
[00:13:23]They compete. And the more that we have competing, the better the outcome will
be for us. And that’s what’s happened as well in the last year or two. Because rates have
gone up, we’ve had some new entrants to the market. New companies have come into the
market now that are saying, hey, rates are high, we could maybe make some money here.
And they’ve started, opening aviation divisions and competing with some of the legacy
insurers. And that’s helping to stabilize rates, and in some cases even bring things down a
little bit. So, that’s all positive news. And, I think Aircraft owners will start to see a little bit
better outcomes than they did the last, three to five years.
Tim:[00:13:54]So rates are stabilizing, so that’s a good thing. Okay, more competition
usually is a good thing as well. Because the race may not go down, but the insurers can
keep each other in check with the competition. So with the insurance side, who are you
insuring for? What are you insuring against? tell us a little bit about that.
David:[00:14:08]You know, on firm we pretty much insure everything on aviation. From,
someone flying a personal aircraft, be it a basic, you know, two seater or four seater plane.
You know we also ensure large corporate jets, and then we ensure aviation businesses too.
That might be an FBO, light school, charter company, aircraft maintenance facility, or
businesses that just happen to use a corporate aircraft and they may not be in the aviation
industry, but they have a corporate flight department. Sometimes, we’ll have all of their
general insurance from another broker, but they’ll come to us for the aviation specialization.
We work with some companies that do that as well. So, if it basically,flies, we’ll probably help
you insure it.
Tim:[00:14:57]It’s a fairly broad spectrum. Let’s narrow and focus, The Pilot Money Podcast,
Our listeners are professional pilots. No surprise that on the financial plan of many
professional pilots, there’s this goal that says, hey, I’d like to own an airplane at some point.
So talk to us about, you know, being properly insured if you own a personal aircraft and then
maybe we can talk about some CFI stuff and DPE stuff because, you know, we do have
clients that do that on the side as well.
David:[00:15:25]Absolutely. So, you’re sort of focusing on the personal aircraft, and in
aviation insurance, we call that someone being insured for pleasure in business use,
because you might be insured, Just for taking, you know, pleasure rides for recreation, but
you might also use your airplane to, you know, to go to business meetings or appointments,
and, you know, you’re not in a commercial aviation business, but you use it as a business
tool, like I do with my plane, and that would sort of fall in that category. two main components
to think about in a very broad sense, and you weeds on this as well, but the policy is called
an aircraft haul and liability policy, and that kind of describes the two broad areas of
coverage that there are. The haul is first party coverage, and that’s covering the risk of
physical damage to your aircraft that you’re flying and that you own.
[00:16:14]And the liability, of course, is third party coverage, and it protects you against third
party claims of property damage or bodily injury if someone else suffers a loss, and they
allege that you’re responsible for it. Both of those areas are ones to look at and make sure
that you understand, you know, What you’re covering, how much coverage you need and
then we can, we can get into specifics if you’d like about that.
Tim:[00:16:38]Yeah, so hold on, you know, somebody hits my airplane on the ramp or a
storm comes through. And so it covers the plane itself and then liability would be something
that I did that I was responsible for.
David:[00:16:51]Right. Just one more thing I’ll mention and that is that, there are two types
of policies when you get a liability limit. One is you can have a policy with a smooth limit also
termed a combined single limit. You have a liability limit including passengers as well. So if
you have a million smooth, that million dollars will include passengers. coverage for your
passengers, and, if you only had one passenger that was injured, and there’s no other
liability claim, they could potentially take avail of the full million dollar limit.
[00:17:20]You also have what’s probably more common is you have policies that have a per
passenger sublimits. You could have that same policy with a million dollars, and it only has a
hundred thousand per passenger. And there’s a big difference between those two, the
smooth limit and the per passenger, because that per passenger means that. Even if you
have a million dollars of coverage, if one passenger is injured, they cannot, collect more than
a hundred thousand from your million dollar policy. have a liability, make sure you know
whether you have a smooth limit or you have a per passenger sublimit. And of course, the
per passenger sublimit policy is less expensive, but the coverage is much less too. You have
policies, less common, they have a per person sublimit and if it has a hundred thousand per
person, that means that not only are passengers sublimited to a hundred thousand, but
anyone else injured in another airplane on the ground, they would also be limited to the a
hundred thousand dollars of coverage. So the policy is not all created equally when you see
the liability limit. Make sure you dig a bit deeper and see and understand whether you have
a smooth policy or you have a per person limitation.
Tim:[00:18:18]if you own an airplane and you’re not super familiar with what David just said,
you need to be talking to your insurance broker to make sure that you understand what your
policy, the protections that your policy is giving you item by item so you can understand
where you’re exposed to liability and where you’re covered.
David:[00:18:38]Correct, absolutely.
Tim:[00:18:39]Now with aviation insurance, do we need to go through a broker or an agent
to purchase insurance or are there things that we can go direct to the insurer?
David:[00:18:49]Well that’s a good question, and there is one insurance company that’s a
direct rider, among the, say 13, 14 insurers that there are in the U.S., but other than that one
insurer that does direct riding, all of the other insurers if you go through the brokerage
channel for distribution. So, unless you wanted to just, you know, get one quote from one
insurer, you would need to go to a broker to be able to access the other quotes. Most
brokers that do aviation insurance are fairly specialized and that’s an area that they focus on.
Tim: [00:19:19]If you want to cast your wide net and get good pricing, you probably want to
go through a quoting. friend of mine. has owns an airplane and he was telling me that if he
went to one broker and got a quote, he was kind of locked into that price for 90 days before
he could go get another quote. What is that about?
David: [00:19:40]yeah, I’m glad you brought that up, Tim, because a lot of people have
confusion about that and don’t quite understand how that works. And it is a little bit unique to
the insurance industry. I won’t say it’s unique to aviation insurance, because a lot of
insurance companies do this in various lines of insurance. But what they do is the insurance
companies obviously work with multiple insurance brokers at a time, they have contracts
with many brokers, and they only want to work with one broker on one particular prospect at
a time. And that’s because they don’t want to have their product, going out with different
quote terms, not just pricing, but even coverage terms that can cause confusion. And, you
know, they want to be able to negotiate specific terms with one broker for one client at a
time. And because of that, they do what’s called a broker of record assignment. What that
means is that, either the first broker that submits the account would be the broker of record.
For that period of time, it’s usually 90 days.
[00:20:39]It’s usually a general rule of thumb for how long that broker record would last. But
if you’re not the first broker, maybe someone else submitted it, but you want to work with a
specific broker, you could sign a broker of record letter. To make that clear, which broker you
want to work with, but you can’t work with multiple brokers at the same companies at once.
And because most of us that specialize in aviation insurance have access to all the same
insurance companies, it usually behooves you to choose the broker you want to work with
and let them, Go to market and get all the quotes because when the underwriters see a
submissions coming from multiple brokers at once and they’re kind of tripping over each
other, it tends to place your account in a bit of a negative light because the insurance
underwriters will feel like, you’re kind of jumping around everywhere and you’re probably not
going to be a long term loyal client and they like to write accounts that are going to be with
them for a long time, it requires quite a lot of resources on their end to issue the policy and
underwrite it, and they’re not looking to just do it for one year, they want to develop long term
relationships by and large, so you’re better off, interviewing various brokers and finding the
broker that you feel most comfortable with, has the best professional expertise, will provide
good service, and that you feel has good relationships with their underwriting partners, the
insurers, then let that broker go to market with your account, that’s the best strategy to get
the best result.
Tim:[00:22:00]And this is going to be on the tail number, like they’re going to see, different
brokers are asking for this coverage on this tail number and they’re going to pump the
brakes on that. You’re going to be locked out from a tail number.
David:[00:22:09]Correct, and sometimes it’s the look at tail number plus the look at the
entity, the individual or the company plus their address, because, you know, obviously, you
could have someone that’s buying an airplane, and someone else already has it insured and
they’re trying to get close because they’re acquiring it. So, the sale number is in the be all
and end all, but that’ll be, they look at that plus, you know, who the entity is.
Tim:[00:22:28]Okay. That’s fair. So there’s about 13 underwriters or insurers and if you
specialize in aviation insurance, you probably have access to most of all of them. Instead of
trying to go from broker to broker to see if there’s any different terms that would be more
favorable for you on the front end, maybe, interview multiple brokers to see if that’s where
you want to place your business and let them do the work. So I think two things come to
mind. One is if you know, you’re going to have to renew your insurance on your airplane.
Don’t wait until the last minute if you’re unhappy with your current broker, because you’re
going to get locked out and then you might have to go with what you get or renew with the
current broker. That’s number one. Number two, you bring up a really great point is it sounds
like there’s a lot going on that broker relationship. So talk to us about how to find a good
broker. What’s the earmarks and characteristics of somebody that’s great you’d want to do
business with and maybe somebody you might want to avoid doing business with.
David:[00:23:20]There are a couple of things to look at. One is, first, talking at BroadSense
and, most people have an insurance agent that they work with on all their lines of insurance.
They may have worked with somebody for many, many years for their businesses or
personally and that person. It’s probably not the best person to do your aviation insurance.
Tim:[00:23:38]Why is that?
David:[00:23:39]Because there’s so many nuances to it, you know, with like, for example,
the pilot warranty if they’re not a pilot, they don’t understand how that works. That’s actually
a warranty in the policy. If you violate that, you’re warranting that’s true. And if you violate it,
there’s no coverage. So, don’t want someone who doesn’t really know the aviation lingo and
terminology to probably be dabbling in that. So, and they’ll probably be thankful for that. You
know, not to have to work in an area they’re not totally comfortable with.
[00:24:03]So, you’d be better off choosing someone who specializes in aviation, even if you
have another book of everything else. and sometimes we’ll, you know, a lot of times we’ll
work with non aviation insurance agencies that come to us because they have an aviation
account and they’re not quite sure what to do with it, and we’ll try to help them provide the
expertise and the background the best that we can, anytime you add somebody else it’s a
middleman, you know, the old game of telephone, where the message gets mixed up when it
goes through more people. So, it’s better to go, I think, directly with the aviation specialist.
That’s the first thing, is look for a broker that specializes in aviation, specifically. And then,
beyond that, ask them a little bit about their firm and the people in it and their level of
experience. Now, many of us in aviation insurance are pilots, but not everyone is. Most of my
employees are not. But many of them have years and years of experience in the field and
that’s what’s most important is that you have the experience and then asking them a little bit
about what the relationship is like with their insurers as well. And I think that, from my
opinion, we represent clients first and foremost as a broker, but in my opinion, the aviation
insurance brokers that take a very confrontational The insurers, like, we’ll beat them down to
get you the best price and quotes and like, take sort of, they’re the enemy’s approach.
[00:25:17]That doesn’t really work very well. You want to have a very collaborative
relationship with your underwriters and your insurers so that, they trust you when you tell
them something, or when you need special accommodation, they can get it done. And that’s
the approach, you know, some brokers take, that’s certainly the culture we have at our firm,
where we try to develop such great relationships with our insurers that, we can sometimes
get things done that perhaps, others can’t. And that’s the sort of broker you want to look for,
and then obviously, ask them a little about customer service, like who’s going to be handling
my account, will I be talking to the same people every time, or, do you call 1 800 number and
get a different person every time?
[00:25:56]being able to get somebody who gets to know you as well is important because
sometimes in aviation, can have very unique needs, you bring another, partner on who’s a
pilot or you want to have a trip you want to do to another territory that’s maybe outside the
country, you need to get insurance for it, you know, having someone that knows you will help
with getting those special requests accomplished.
Tim:[00:26:15]Yeah. I think you’ve given a good framework for folks to start to think about
the questions they’re going to ask potential brokers, you know, particularly if that’s a long
term relationship and you’re going to be trusting that broker to do the best work for you,
between them, the aircraft owner and the insurers, I’d love to hear about, let’s say I own an
airplane. Are there limits on the number of pilots who can fly my airplane that would also be
covered under my insurance policy? So that’s one question. And then the other question is
about renter’s insurance because I actually don’t own an airplane right now, but I rent. So
this is maybe a selfish question for what kind of liability I want to keep away from myself as a
renter.
David:[00:25:56]Yeah, so to address your first question with regards to the pilots that can fly
your aircraft, most policies, not all, but most, have both named pilots, those specific people
the company has, they vetted, you know, their experience and their history, and they’ve
approved them to fly, and then there’s usually an open pilot warranty too. And the open pilot
warranty means that, any pilot that meets those experience criteria and ratings can fly your
aircraft and you as the aircraft owner will be covered if you let them fly your airplane. So,
usually. There’s no limit. I mean, if someone meets the open pilot warranty, you can give
them the keys.
[00:27:33]If something happens, you would be covered for that accident assuming they met
that criteria. Usually, though, if you want to name pilots, a lot of people want to name multiple
pilots on their policy. You can usually name up to four to five maximum. Usually when you
get to five pilots, a lot of times they’ll remove the open pilot warranty if you have that many
named pilots. So you need to look at that. And also, some policies are named pilots only and
they don’t have an open pilot warranty. Those are usually aircraft that are unique and
unusual aircraft like a lot of experimental aircraft or aerobatic aircraft will be named pilots
only because of the unique nature of that type of risk, the underwriter wants to review every
pilot that flies it. And the second question. Was, renter’s insurance and, if you’re flying
someone else’s plane, maybe you’re flying under the pilot warranty, the open pilot warranty
of a friend’s plane you’re still probably going to want to have renter’s insurance because,
even if you meet their pilot warranty, their policy, their owner’s policy is designed to protect
them, it’s not designed to protect you.
[00:28:36]You could always try to get added as an additional insured. on their policy and ask
the insurer to waive their segregation rights, meaning the insurer agrees that they’re not
going to come back against you if you cause damage to the aircraft they’re insuring, but a lot
of insurers don’t agree to that, or maybe it’s a, spontaneous sort of ad hoc situation where a
friend’s like, hey, let’s go fly, you don’t have time to have them contact the insurer to get you
added on as additional insured with the waiver of segregation, you want to have some
protection for yourself while you’re flying if somebody alleged that you were responsible for
causing the accident.
[00:29:07]And that’s where renter’s insurance comes in. But that being said, renter’s
insurance is not a substitution for someone flying a plane that doesn’t meet the open pilot
warranty. Because I’ve had people call us before and they’ll say, well, I can’t get a pilot
approved on my policy, but I’ll just have them get renters insured. that’s not going to be a
total solution. It may cover it if renter pilot’s borrowing your plane is responsible for causing
the accident. But renters insurance is liability coverage. you have physical damage coverage
on the renters, it only covers physical damage to the airplane if you as a renter. And if there
was an active guard like a weather related issue, like hail damage, for example, or there was
a mechanical failure, like an engine failure had nothing to do with the pilot who is flying let’s
say that pilot didn’t meet the pilot warranty of the owner’s policy. The owner’s policy could
deny coverage because you didn’t meet the pilot warranty, even though it was a mechanical
failure. And the renter pilot, the non owned policy, also called renter’s pilot policy, could deny
coverage because as a pilot you weren’t liable. So it could be one of those areas where
there’s coverage nowhere. So want to make sure that, you know, you meet the pilot warranty
under the policy of the aircraft, for the aircraft you’re flying, and have renter’s coverage as
well. You have to, it’s a two fold situation that you need to look at to verify both.
Tim:[00:30:25]Wow, yeah, because that would be in an unfortunate circumstance where the
issue kind of fell through the cracks of both coverages. And then, you know, the aircraft
owner is left exposed. One question that I’ve got for you is, as I work with clients and their
financial plans they want to buy airplanes. What impact do you see that age has on
insurability and premiums and so forth?
David:[00:30:49]Yeah, age a big factor that underwriters look at and it’s been challenging,
especially in recent years, as underwriting has tightened with pilots that we call termed
senior pilots, that, look to purchase a, a new airplane that perhaps is more complex, has a
higher haul value, and they’re more senior in age when they make that purchase. And you’re
right, a lot of times, because, they’ve now gotten to the point where they’ve accumulated the
assets where they can, they have the income where they can do that. And, that can be very
difficult to get insurance in some cases. Most insurers vary by insurer and, and type of
aircraft, but most insurers have stricter underwriting requirements when pilots get above 70
years of age.
[00:31:21]That’s, kind of a benchmark where things get a bit more challenging. for a new
purchase particularly. And then 75 gets even more difficult. And probably if you’re in your late
70s to 80s, then you can have a very difficult time getting coverage for a new purchase. I
won’t say it won’t be possible. You know, if you’re willing to pay enough, you know, almost
anything is possible. But, some point the premiums don’t become feasible financially on the
flip side, If you’re, a senior pilot but you’ve had the same airplane for many years and you’ve
been flying it for many, many years and you’ve been with the same insurer, and this is where
we tell clients that particularly as you age, it’s good to build loyalty with an insurer and don’t
jump around to different companies. You have that long history and you haven’t had any
claims. Most insurers will stay pretty loyal and they’ll continue to renew you. Well into your
seventies and even as late as early eighties, depending on the plane you’re flying now, if
you’re flying a turboprop or a multi engine jet, you’re probably gonna have to fly with
somebody else sooner than you would if you are flying a skyhawk.
[00:32:32]But, there may be a solution where the insurer used to compromise and say you
have to fly dual at a certain age with another pilot. But those are discussions most insurers
have, well before they dictate it. And, discussions you have with your broker as you start to
get above 70, particularly if you’re flying one of those more complex aircrafts. But the good
news is if you already have the plane and you’ve had it insured for a while, you’re probably
going to keep flying it. It’s a bigger challenge when someone is new to the market
purchasing an airplane. That’s why I also will sometimes counsel clients and tell them that, if
you want to transition into this turboprop, you might be better off to do it while you’re still in
your 60s.
[00:33:05]And then you have a longer runway than to wait, until you’re in your 70s, it’s going
to be more challenging. So sometimes strategizing about when you do it, is important as
well, because you might have a longer runway of flying it afterwards if you do it a bit earlier.
Assuming you can financially afford it. One other thing I’ll mention too about it is that, it’s very
controversial, the whole rating based on pilot age, and a lot of clients will, obviously be
unhappy about hearing that, and they’ll mention, you terms like age discrimination, and it is,
it is age discrimination, but it’s a legal form of discrimination, insurance regulators allow
insurers, pretty wide latitude for discriminating on certain demographics, not all
demographics, but certain ones, and age is one of them, because, everyone ages at a
different rate, of course.
[00:33:51]We all know people that are 80 that look like they’re 60 and vice versa, but just
taking the general population at large, physiology and reaction time and cognitive abilities do
decline in general if somebody ages above a certain age. So underwriters aren’t able to
individually evaluate each pilot. They have to look broadly at how those factors decline over
time and how that affects risk. And that’s why, it’s more challenging, more expensive to
insure a senior pilot.
Tim:[00:34:20]So, Senior Pilot is seven and above. And it sounds like we would start to run
into some issues with the higher complexity airframes. But if you’ve owned your airplane for
a long time, you’ve had the same relationship for a while, then that could smooth the way for
you. And then when would you start expecting, let’s say single engine pistons or multi engine
pistons,like is it that 70, 75, is that the same for those classes as well?
David:[00:34:53]They already have coverage, if you’re flying a single engine piston, you’re
going to be good until you’re at least 75, maybe even into early 80. It’ll depend on whether
it’s high performance and a really high haul value, like sometimes pilots are just flying,you
know, a newer Cirrus. Maybe they’ve flown it for a while, but the haul value is still fairly high,
that’s going to be a bit more challenging above 75, but normally until your late 70s, it might
be more expensive, you’ll still have insurance, maybe liability limit will be a bit less than what
you had before, and if multi engine piston, when you’re above 75, it’s going to be a lot more
difficult. I still think you could be good up until you’re 80, early 80s. It’s depending on the
insurer you’re with. Every insurer has different underwriting criteria, and those do change
over time, too. So, it’s hard to provide a broad generalization with every insurer. But, you
know, I think about 75 is going to be more challenging. And if not getting coverage, just
getting liability limits. And rates are a bit higher.
Tim:[00:35:55]That’s good to know. So my message to the listeners is to plan well. Give
yourself as much runway as possible for your aircraft ownership. I’d love to hear, like, what
are some common, maybe misconceptions that pilots have when trying to address the
liability of aircraft ownership? If you, if you see things come across your desk, you’ve been
doing this for a long time I’d love to hear what you see.
David:[00:36:18]Yes, absolutely. So one of the, most common misconceptions regarding
liability is when aircraft owners will, buy an airplane that they’re using personally. You know,
they will put it in the LLC and maybe they can only get a certain insurance limit.You know,
perhaps they can only get a million dollars of liability, because of their experience, the type of
airplane it is. Maybe they have a lot of assets protect and they have, a $10 million umbrella,
for example. Personal umbrellas exclude aviation, almost universally. So, you know, they
may put an LLC and think that, you know, I’m all set because it’s under an LLC.
[00:36:50]If somebody sues me and my insurance isn’t enough, you know, the LLC will
provide that corporate veil, so to speak, to protect me. And, you know, that’s a misconception
in aviation because if you’re flying the plane, You’re the pilot in command, you’re going to
have personal liability and the LLC will not protect you for that. So that’s not to say there
aren’t reasons for putting a plane in an LLC or other limited liability company, but personal
liability protection for the pilot who’s flying is not one of them. Now, if you have multiple
partners, then it’s very valuable to have the plane in that LLC or other limited liability
company because what it will do is if you’re not the pilot flying, let’s say your partner is flying
the plane and they have an accident. You know, they’ll have all the issues around their
personal liability, but that limited liability company will provide protection for you as a partner
who wasn’t flying at the time. So if you have partners, definitely, or if you have it in a
business and you hire a corporate pilot, like you, you hire someone to fly you around in the
plane, then absolutely having that limited liability company serves a really important purpose.
[00:38:00] So that being said. always advise aircraft owners to buy, you know, the highest
liability limit that you can get. And it’s, of course, feasible for you to cover from a budgeting
perspective, but sometimes, can, you’re limited by, you want to buy more, but you’re limited
by your experience and only to a certain limit. So, when that’s the case, and often is, you
know, you should consult with a corporate asset protection attorney, because there are
things you can do. Outside of insurance to structure your assets in the most favorable way to
help protect you if something does happen. And I think that, this is going to be a little
personal opinion here, but I think that as a pilot and aircraft owner, moral obligation to get
liability protection as much reasonably can to be able to settle claims if we cause property
damage or bodily injury to someone innocent on the ground, for example, that, didn’t sign up
for our flying, we have an obligation, to have something there to take care of them, but,
beyond that obligation, and we’re going to get so much liability, our next obligation is to our
family, and setting up our assets so that we protect our family, and if we own a business
protect our partners and our employees as well. So, and that gets into, like I said, some of
the asset protection stuff that you should look at too. But yeah, definitely always try to get the
highest liability limit that’s feasible.
Tim:[00:39:14]So I heard a big misconception is, hey, I don’t necessarily have a business
interest for my airplane, nor do I have partners. So I own my airplane personally, and I’m
going to put it into an LLC, and that LLC may provide some coverage, and you’re saying,
hey, not so fast, right, in that case. Let me throw a wrench in there. What if you are providing
instruction out of that aircraft? maybe you’re providing instruction and you’re the only owner
on it. There’s no partners. Does that change the calculus at all or is that of the protection of
the liability?
David:[00:39:50]it does, and all those, same issues and challenges arise with that, although
there’s a couple of things to consider, insurance wise when you do that. For one, that’s a
commercial use, and you have to get special coverage for that, like if you get normal
insurance. Pleasure in business policy that I mentioned for personal aircraft, that won’t cover
that type of use. So, that’s called an instruction in rental or just, even just dual instruction if
you’re not renting an airplane, but that’s a commercial use you have to specifically ensure to
be covered.
[00:40:15]But you also, another important coverage that you can usually get endorsed with
that type of policy is negligent instruction coverage. So, that’s a professional liability, like an
errors and missions type of coverage that CFIs get a malpractice insurance, if you will, for
flight instructors and that covers them if, you know, the person you gave instruction to is later
off flying on their own after they’ve gotten instruction and left and they have an accident and
they claim that the accident occurred because you gave them bad instruction and it would
cover those claims. They’re very rare, but it’s important to have that and it’s not very
expensive to get that coverage added. But, CFI is still going to have personal liability. If
they’re the ones giving instruction, even if it’s in an LLC. So again, it’s important to have the
best liability protection you can.
Tim:[00:41:02]Thanks for clearing that up. Because you see that often. Or at least I see that
often with clients who own an airplane and, you know, it’s inside of an LLC and there may or
may not be a business use for that or may or may not be additional partners. David, in your
experience, do you have any stories of things that went well or things where somebody
maybe learned the hard way about the importance of proper insurance.
David:[00:41:28]Yeah. So many claims examples I can think of that have gone well and,
gone bad and I’ll start with the ones that have gone bad and, you know, it’s usually that’s
been because of one several things being violated in the policy. And those are either the
pilot warranty, and the use of the aircraft, the two largest ones. And sometimes policy
territory too, that can be another one. Although I don’t think that one is commonly an issue
because most policies have a pretty wide territory that’s covered. But, Pilot Warranty are big
ones, and I’ll mention a couple, quick examples. One example we had was, you know,
somebody, doing what was found to be an unapproved charter operation. The old, 134 and a
half, so to speak, that people are, you know, doing charter and, and it’s not, they don’t have
a charter certificate. But, you know, but they’re holding out for the public, they’re taking
money, and maybe a commercial pilot flying it, but they don’t have a charter operation.
[00:42:20]So, I have seen a claim that’s been denied because someone was doing that. And
they had, you know, actually a pretty bad accident with injuries. The claim was ultimately
denied because they weren’t insured for that use. I’m sure there are legal ramifications as
well with the FAA for not having a charter certificate. But from the insurer’s perspective, it
was it was because they didn’t have that coverage use insured. So just a normal personal
policy. And then I’ve also seen situations where a claim has been denied because there was
a violation of the pilot warranty. And it wasn’t because the pilot wasn’t approved. This is
actually a situation where the pilot actually met the pilot warranty. In fact I believe he was
even a named pilot, but he didn’t complete the training that was required. Sometimes pilot
warranties not only specify, who can fly, but if it’s a more complex aircraft, like a turboprop or
a jet, a lot of times we have training requirements, like for example you have to go to specific
simulator training within the last 12 months even a pilot that had many hours in the airplane.
If they did not go to their training that they were supposed to go to and there was an
accident, particularly if it was, pilot error related accident. What if the pilot made a mistake,
maybe training could have prevented it? They have a right to deny that claim. And I’ve seen
that happen in several cases. So looking at the pilot warranty and, you know, making sure
those training requirements are there we hope you will do it, it’s, have to do it, you’re
warranting you’re going to do it or there’ll be no coverage. So there’s a couple bad situations
and then there’s plenty of good ones.
[00:43:42]Most of the claim situations that we have are, I won’t say they’re positive, but the
outcome. satisfactory and most aviation insurers have claims adjusters that really care about
doing right by the client. Most of them are aviators themselves and the pilots have been in
the industry, they love aviation and they really care about doing a good job for the client. So
that was the general insurance too and I didn’t get the same sense of care, from the adjuster,
the claims adjusters and general insurances I see in aviation. So, that’s a good thing. And,
I’ve seen situations where, for example, someone’s had a total loss and, you know, they
were so concerned that they weren’t going to be able to, buy another airplane again to
replace what they lost.
[00:44:25]But, because aviation insurance, the whole insurance is on an agreed value basis,
you know, whatever you have on the policy, the insurer is going to pay you and you want to
make sure your haul is insured for the right value, but a lot of people think it’s going to work
like auto insurance does where, you know, when you have a claim, the insurer goes and
looks at the Kelley Blue Book values or something similar, and then they give you a
depreciated value at the time.in aviation insurance, if you have an insured for a certain
value, you’re going to get that less of a deductible, irrespective of where the market is at the
time you have a loss. So, that’s a plus. As long as you have an insured properly, then you’ll
have, you know, best outcome you can in the circumstances.
[00:45:01]And then I’ve seen some liability claims where, the insurer has really stepped up to
the place to defend the client and most insurers do a great job of that, or aviation insured
that he, either have in-house attorneys or they have aviation attorneys on retention and
they’ll do, they do everything they can to get the claims settled within the policy limits. So,
even clients that have had somewhat lower limit policies, a lot of times I’ve seen them settled
within policy limits. And the good thing is the legal defense costs when the insurer is
defending you are in addition to the policy limits. So whatever the insurer spends is
defending you. doesn’t subtract away from your policy limit. So that’s good as well.
Tim:[00:45:35]Yeah, no, that is a positive. And then going back to the stated hold value in
your policy, I mean, this is why it’s important when it’s time to renew, you know, see what
your airplane is worth. I mean, I’m particularly thinking about the last couple of years where
we saw some real increases in value, in terms of aircraft. Like, you know, don’t say, oh, it’s
going to shoot my premium up. I’m going to keep this lower hold value on my policy. Well, if
something happens that’s what the insurer is going to pay out. And, you could be, wishing
that you had increased it.
David:[00:46:05]Exactly. And a more common situation, the last couple of years in the
market where market values have shot way up and you know, a lot of clients have found
themselves underinsured and we’ve been increasing values our renewal that’s the case. And
we have that discussion, but I mean, it does increase the premium, so that’s the downside of
it. But, we have had a couple of situations in the last two years where somebody, didn’t have,
enough haul coverage because they didn’t keep up with the market or they didn’t want to pay
a higher premium that would be associated with it, but that’s the downside is that then you
won’t have enough to replace what you had. I would recommend that, everybody looks at
that either just using, the two best tools that we usually use in the market are Aircraft Blue
Book or V Ref, and I think if you’re an member, you may even have access to a free version
of V Ref to get values, but that’s a good starting point because aircraft values, especially if
you have a legacy aircraft, from,30, 40, 50 years ago, the values can vary dramatically for
the same year, make, and model, depending on, how it was upgraded, because most likely
it’s had various avionics upgrades, maybe it’s had a new paint job and carrier. Those things
can all change the value dramatically. You can sometimes see airplanes of the same vintage
that are a two or three fold difference in value because of what’s been done to the plane.
Tim:[00:47:21]I think that’s a really good point. That’s a good reminder.
David: [00:47:24]Just a couple of things to add one is that, when you do have a claim, like
you have a partial loss, where the aircraft can be repaired and it doesn’t need to be totaled,
and that’s the majority of claims that we see. One thing that’s important to be cognizant of is
that, something in the policy called betterment. So insurance is meant to put you back to the
same position as where you were. You’re no better, no worse. That’s the ideal situation. And
if you have an airplane, for example, that has an engine which is about to be due for
overhaul, and you have a situation where, like say you have a prop strike, for example, that’s
a common situation where the engine has to be replaced and maybe Your engine was 100
hours away from overhaul time. The insurer is going to deduct something for the fact called
betterment because now you have a zero time engine. So, you may have to put some
money into the claim.
[00:48:13]Obviously your plane is better because you have a new engine, but you have to
put the money out of pocket into the plane and sometimes that causes a source of
discontent because people feel like, you know, they shouldn’t have to put money in because
they have insurance, but again, you have to think of that concept of insurance being to make
you whole. If it makes you better than whole for the situation, then they’re going to expect
you to put something in as well. So I just mentioned that because it’s sometimes a surprise
to people, but the insurers are normally pretty fair with how they calculate. that betterment
calculation and, you know, it’s always, there can always be some back and forth on that,
that’s something just to be aware of. I would also suggest that, if you have an airplane, don’t
just renew your policy every year without looking at your coverage. And I don’t mean
necessarily, moving it or, or shopping at different places every year. But looking at the
coverage, having at least a review where you have a discussion with your broker.
[00:49:03]look at your values. and your liability limits and, you know, maybe your personal
needs have changed and you need higher liability or maybe you’ve gotten more experience
in ratings and you qualify for more liability, but the value needs to be adjusted because of the
market. But you don’t just renew it without thinking about, most aviation insurance brokers
always send a renewal application, usually about 90 days before your policy renews and
that’s a chance for you to look at everything. and, fill that out and complete it and if changes
need to be made or discussions should be had, then talk to your broker because that’s a
time to look at your policy and make sure you keep up with all of your needs for your aviation
insurance.
Tim:[00:49:38]Yeah, I like that Betterment point. I did not think about that. Otherwise there’d
be some misaligned incentives, you know, with the parties involved. Well, David, this has
been a fantastic conversation. So if it flies, you insure it, going from, you know, personal
recreational to business, you do work with flight schools and FBOs as well. Where can
listeners learn more about your insurance agency?
David:[00:50:03]if you’re interested in learning more, go to our website, which is www.
planeinsurance. com. And of course, plane is P L A N E, spelled like airplane,
planeinsurance. com.
Tim:[00:50:15]I love that URL. I won’t ask you how much you had to pay to get that one, but.
David:[00:50:19]Well, you know, fortunately, that came from Dan Schrager when we
acquired his business. I think he purchased that URL many, many years ago when the
internet was young, and you could still get good URLs like that, so we’re very fortunate to
have it. Ha ha ha.
Tim:[00:50:33]That’s great. So guys, planeinsurance.com is where you can find David and
team for your aviation insurance needs. David, thanks for coming on the pilot money
podcast.
David:[00:50:43]Well, thanks for having me, Tim. I enjoyed speaking with you, and I think
you’re doing a great job on that podcast, so I look forward to hearing future episodes as well.
Tim:[00:50:50]Thank you. And that brings us to the debrief section. The first point I want you
to think about is: work with a professional. There were so many things in today’s episode
that David talked about that was an education for me, and I thoroughly enjoyed it. But the
whole value, the liability of your policy, pilot’s warranty versus named pilots. Business use of
aircraft versus pleasure use of aircraft. A smooth limit versus a passenger sub limit. When
you go to insure your aircraft you’re going to wanna work with a professional who has been
doing this for a while. Someone who has a lot of time in the seat versus trying to figure it out
on your own. Now there’s a lot of value in this idea of working with a professional, whether
you are insuring a plane, building a home, completing a financial plan. Right, when you
realize that, hey, this is more complex that i’m equipped to handle, or it’s a bit more complex
than you want to handle.
[00:51:49]Or that you have time to handle, then that’s a great indication that it may be time to
begin working with a professional so that’s point number one. Point number two is keep the
big picture in mind. We talked about, over the last several years aircraft values have been
going up and it could’ve been tempting for an owner to think short term and say well you
know, maybe my value of my aircraft won’t go up by that much. I’ll avoid increasing my
coverage because you got it, they didn’t want the premiums to go up. So David was clear to
point out that plane insurance is unlike car insurance, where if you total your car the
insurance company will go out to the market place. They’ll look at current values and apply
that accordingly to your case.
[00:52:36]But with airplane insurance, he said what your policy says is what the insurance
company is going to pay out. You can think about what that would mean to your own cash
flow, to your resources if your replacement cost went way up. But your airplane is under
insured and you had an incident where you needed to use the policy. You know I see this a
lot with life insurance right guys. We’ll move from the regionals to the majors or from the
military to the majors. And you know, not wanting to increase their life insurance initially. But
meanwhile the pay and the obligations to the family increased. And so you wanna think that
if your family had a circumstance where you needed to rely on that life insurance because
they lost you and your income.
[00:53:23]If you’ve put a little work in ahead of time to make sure your policy is the right size, your needs can go a long way. So you wanna keep the big picture in mind, first, the more coverage the more premium. You don’t wanna be over insured, we certainly do not wanna be under insured. And point number three, the last thing that I’ll have you think about is that there is value in long term relationships. So David mentioned that insurers like long term clients and you can compare that to the ads or the commercials that we hear, car insurance, here you can save 15% in fifteen minutes! If you switch. Honestly I haven’t heard that in a long time, I don’t even know if that’s still the jingle, well clearly it’s worked, because I can pull it from my memory.
[00:54:09]So David’s point though, is that there are benefits to being a long term client that can pay off. He said sometimes his brokerage is able to get things done that other brokers cannot, simply because they’ve been working with that client for a long time. Because they know that client, they know their aircraft. And what another underwriter might perceive as a risk that they’re unwilling to take, you know, the familiar broker will understand if that’s a risk or if it’s not. That’s one thing, he also said, hey if you are planning to fly as long as possible, You are going to be considered a senior pilot. Then having the same insurance broker and also time and type will help out. That will keep you flying for as long as possible.
[00:54:57]And then the last thing and this heading the value of long term relationships is that theres value in long term relationship, but look if your current broker is not satisfactorily meeting whatever your insurance needs are then you wanna be proactive when shopping for a different broker. We talked early on in the episode about that 90 day lock when you get a quote. So when you get a quote and it’s gonna lock you from getting another quote for 90 days, and you heard it, your broker will send you the renewal in about 90 days when you’re due. So he gave some excellent points on how to interview a potential broker to see if it’s going to be a good relationship for you, and then just be proactive and be aware about that 90 day freeze. So point number three, there’s value in long term relationships, and as with airplane insurance we see the same with financial planning clients as well. There’s probably other places as well where long term relationships have value above the dollars and cents that we can calculate. So we’ll get you out of here on that, thanks for joining this episode. David’s information is in the show notes , if you are in need of aircraft insurance, give them a look. Thanks for joining this episode and we will see you next time.