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Hull Value


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Hull values have been discussed on this forum many times, so I've put together a post detailing hull value strategy when talking to your insurance agent.

Unlike most standard automotive policies, almost all aviation insurance companies insure aircraft physical damage using Agreed Values.  That is, the Insured and the Company agree to a value that the aircraft is worth in the event of a total loss.  But what should you choose for an agreed value of your Mooney?

The short answer: Insure your aircraft for a value at which you could replace your plane with one of like kind and quality.

The long answer is a bit more thoughtful:

Insurance companies will agree to a wide range of aircraft values.  This is typically in the range of Blue Book value +/- 25%-50% depending on the age and type of the aircraft.  And that Blue Book Value can take into account the engine hours, equipment, and condition of the aircraft if the owner provides hull value justification to the insurance company.

A quick look through the aircraft classifieds can give you a starting range of what to consider for your aircraft's hull value.  Try to find the most similar aircraft to yours and make adjustments based on condition, equipment, and airframe & engine hours.  You may find, however, that you have a very uniquely modified airplane with much more investment than you can find of similar aircraft in the classified ads.  So what should you do?  Still, find the closest example to what you have and figure the cost to modify the plane to what you currently have.

 

A word on under-insuring:

If you own an unmodified aircraft that could sell tomorrow for $50,000 and only insure it for $35,000 because that's what you paid 10 years ago, you could find yourself in an unfortunate situation in the event of an occurrence - let's say a nosegear collapse.  The insurance company gets your claim and assigns an adjuster.  He surveys the damage and discovers you're looking at a $10,000 engine teardown, an $8,000 propeller, and $6,000 of other minor damage.  All-in, it's $24,000 in damage.  You have a $0 deductible.

Knowing that the aircraft has decent salvage value, the adjuster requests bids from aircraft salvage companies.  Three salvage companies offer $12,000, $14,500, and $13,200.

Insured Value - Salvage Bid = max the company will pay to fix your airplane (in most cases)

As you can see from the above example, the insurance company would lose less money by selling the aircraft for salvage.  But they would first likely offer to pay you a Total Loss and you buy the salvage back from them.

In light of this example, be sure to re-evaluate your hull values every year for changing market conditions.  Now the owner has a $35,000 check in hand but discovers all the planes of like kind and quality cost about $50,000.

 

A word on over-insuring:

You sold your business in 2004 and called up Mooney to order a new 2004 Mooney M20R with a purchase price of $500,000.  All these years you keep the hull value the same.  While on vacation in Florida, a tornado rips through the airport and throws two airplanes on top of your Mooney.  The propeller has been struck, all the glass is broken.  You've got dents and tears all over the skin.  You're looking at a $180,000 repair bill on an aircraft that's worth about $250,000.  Salvage bids are in the $70,000 range.  It's not a total loss.  Now you have an airplane that's special to you, but that no one would want to buy from you.

If you'd insured it for $250,000, the insurance company would have written you a check and taken your plane.  But insured for $500,000, they can make a lot of repairs.  They have no interest in paying you $500,000 for an airplane which is only worth $70,000 to them (net loss of $430,000 plus their expenses).

Even if the repairs went over the estimates and it cost them $250,000, they are still much better off!

 

Feel free to ask any questions or give me a call at 214-295-5055 if you wish to discuss your insured value.  In dealing with Airspeed Insurance Agency, you'll be talking to an insurance agent who has also owned a few aircraft.

Blue Skies!

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This is very useful information! I’ve read this multiple times but not as concise using imo real world numbers.  In the above example would most underwriters allow you to make up the $2-3k difference or for liability reasons would they require more?  Do they require you to buy the aircraft back on an open auction or just use the average salvage quote?

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Not to clutter up this thread but I’d really like to know rough numbers for upgrading prospects (curious more than anything). 

300 hr tt pilot with IR (0 multi), lets say currently 1k for a $55k Mooney (100/1m). What would be the 1st and 2nd (assume 100 in type) year cost to upgrade to:

A $60k baron 55 -

A $200k Aerostar -

A new $800k Acclaim -

A new $800k SR22t -

Thanks!  

 

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26 minutes ago, MIm20c said:

This is very useful information! I’ve read this multiple times but not as concise using imo real world numbers.  In the above example would most underwriters allow you to make up the $2-3k difference or for liability reasons would they require more?  Do they require you to buy the aircraft back on an open auction or just use the average salvage quote?

They will typically use one or an average of the salvage values when giving you a buyback option.  They'd prefer just to settle with you as there is more expense in selling it to someone else.

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18 minutes ago, MIm20c said:

Not to clutter up this thread but I’d really like to know rough numbers for upgrading prospects (curious more than anything). 

300 hr tt pilot with IR (0 multi), lets say currently 1k for a $55k Mooney (100/1m). What would be the 1st and 2nd (assume 100 in type) year cost to upgrade to:

A $60k baron 55 -

A $200k Aerostar -

A new $800k Acclaim -

A new $800k SR22t -

Thanks!  

 

I'll send you a PM

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