The Savvy Aviator #54: How Much Insurance Do You Need?
"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.). Mattituck [an engine overhaul company] tells me that if the teardown inspection reveals the crankshaft or crankcase (or both) 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?"I discussed the various options with Bob. I pointed out that, should he opt to have the aircraft repaired, even in the best-case scenario he would wind up with an aircraft that had substantial damage history and impaired resale value, and in the worst-case scenario he'd wind up having a lot more invested than the aircraft was worth. I suggested that, setting aside his emotional attachment to the machine, the most logical course of action might well be to take the $60,000 and go shopping for another airplane. (A look at Aircraft Shopper Online revealed that 1980 Cessna 172RGs have asking prices between $50,000 and $70,000.) I also suggested that, if Bob decides to repair the airplane, he might do better working with a smaller engine shop that specializes in prop-strike teardown inspections rather than with a big shop like Mattituck, and I offered him a couple of referrals.