Are You Overinsured?
November 19th, 2014 by Mike Busch
Cessna 172RG gear-upI received a plaintive email from Bob, the owner of a Cessna 172RG Cutlass who found himself in an unexpected predicament. Seems he had an unfortunate gear-up landing. The airplane suffered only minimal damage, largely limited to minor belly damage and the outer four inches of the prop tips curled back. The engine had only about 100 hours SMOH at the time of the incident. Surely, all of this would be covered by insurance.
Unfortunately, Bob was about to learn a painful lesson about hull insurance:
“When I bought the $60,000 hull insurance policy, I didn’t read the fine print that said $60,000 wasn’t really available to fix the airplane in the event of a mishap. The actual amount available is the $60,000 policy limit minus the salvage value. The insurance company claims that they can get about $15,000 for the airplane for salvage, which only leaves me with about $45,000 to get the airplane fixed.
“Now here’s the rub: The repair shop has given a flat-rate bid of $41,000 plus tax to repair the airframe and do the requisite post-prop-strike engine teardown inspection. However, the bid explicitly excludes the cost of any necessary engine repairs beyond replacement of routine parts (rings, bearings, gaskets, etc.). The engine shop tells me that if the teardown inspection reveals that crankshaft and/or crankcase is damaged, the additional cost to repair could wind up being tens of thousands of dollars.
“Looking at the risk equation: In the best-case scenario, the repair cost is $41,000 plus tax and the insurance will cover it (just barely). In the worst-case scenario (if the case and crank are bad), I could wind up being out of pocket as much as $20,000, which would be painful. Alternatively, I could let the insurance company take the airplane, accept the $60,000 payout, and move on. But the airplane is only minimally damaged, and losing it under these circumstances would also be painful. What should I do?”
Rest of the story is here.
