What should be the ideal liability coverage for your aircraft?
Updated: Jun 16, 2020
Liability insurance cover is a very important aspect in insuring your aircraft. Normally, the law prescribes the minimum level of liability insurance based on the passenger capacity and maximum takeoff weight (MTOW) of the aircraft. For example, EU law prescribes the minimum liability insurance for a Gulfstream G650 with passenger capacity of 14 and MTOW of approx. 50 tons to be of USD 220 million.
Many financiers will set minimum liability limits as a condition to financing. It is in the best interests of financiers to have a higher liability limit because of the possibility that claimants will seek to join every party with an interest in the aircraft into the litigation, including the financiers. Financiers will want to ensure that the chances of the insurances being exhausted are minimal.
Apart from the minimum amount prescribed by the law, you should also consider a wide variety of factors in order to arrive at a particular number for the liability insurance. Some of the factors to be considered are as follows:
Usage of the aircraft: This is a broad topic and all the factors listed below are used to check for the flight-to-cycle ratio meaning if there are more cycles than flight hours, you must go for a higher liability limit. They are:
How many hours your aircraft is anticipated to fly in a year?
Will the flights mostly be long-haul or short-haul?
What is the estimated flight cycle? This is taken into consideration as takeoffs and landings are seen as the most risky activities.
Pilot Experience: Pilots play an important role in determining the risk of the aircraft. The more experienced a pilot, the less chances are for an accident to occur, therefore reducing the quantum of third party insurance and the price. The parameters the insurer considers while assessing the pilots are:
Number of hours of experience that pilot has on that particular aircraft type.
The duration of the pilot’s license.
Whether the pilots are employed by the owner or are they agency pilots.
Destinations: The places where the aircraft flies to play an important role in deciding its liability coverage amount. If the aircraft flies over densely populated areas, lands at busy airports or travels to countries with poor infrastructure, then it is most likely to have a higher exposure to third-party damage claims. This is further extended if your aircraft flies to major airports and on busy flight routes as it will be sharing space with larger and more expensive aircrafts.
Passenger Profile: If the aircraft carries high-net-worth individuals, the possibility of being sued by the relative or associate cannot be ruled out.
Dedicated hangar - A dedicated hangar with airfield security is much less of a risk than an airfield parking space with no security.
The owner of the aircraft must take into account all the relevant facts and data in order to arrive at the liability insurance cover. It is advisable to have a reasonable level of liability coverage and not just the minimum level prescribed by the law.
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