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Limited-Limited Commercial Insurance

Bob Mackey, Senior Vice President

Falcon Insurance Agency (NAFI Flight Instructor Insurance Plan)

In the aviation insurance industry, we use several terms to describe the types of uses airplane are insured for. For example, “pleasure and business” (a.k.a. “P&B”) means the non-commercial use of an airplane by the owner (named insured), as well as any other permissive user who meets the approved pilot warranty. Here’s one example of the P&B wording taken from an airplane insurance policy: “AIRCRAFT USE. The policy shall not apply to any Insured while the aircraft is being used with the knowledge and consent of such Insured for any purpose involving a charge intended to result in financial profit to such Insured unless otherwise indicated herein.”

Another term used to describe an approved use is “limited commercial.” This means the use of the insured airplane for rental to student pilots for the purpose of receiving dual instruction for a charge and rental to student pilots for the purpose of supervised solo flight in conjunction with flight instruction. In addition, limited commercial traditionally includes rental of the insured airplane to pilots who have a pilot certificate and medical certificate appropriate to the airplane being flown, including an appropriate check out.

Typically if it costs $1,000 to insure an airplane for P&B uses, it will cost approximately $5,000 to insure the same airplane for limited commercial uses. You’re probably thinking that seems like a big jump just to add instruction and rental, but the fact is, instruction and rental are two of the highest losses for insurance companies, and subsequently, the insurance companies charge a much higher price for insurance for those operations.

The problem is that flight schools that also rent airplanes have a wide range of flight-training and rental activity, yet they all seem to be paying the same for their insurance. This forces smaller, less-busy flight schools to struggle with higher insurance costs per flight hour flown.

Recently, one aviation insurance company developed and released a new methodology to price their insurance for flight schools. This new approach is based on the number of hours flown. On the surface this sounds like a good idea. The question is, do busier flight schools that fly more instruction and rental hours have fewer losses per flight hours flown (dollars to the insurance company) verses a less-busy flight schoolè Time will tell if this approach works for the insurance company. At the same time, it’ll be interesting to see if this concept works out well for the flight schools.

But what if you’re a flight instructor, and you want to do a little flight instruction—maybe one or two students—just to keep yourself proficient as an instructorè Or, what if you own a tailwheel airplane, and you want to do occasional tailwheel transition trainingè Will your annual premium increases by five times to go from a P&B approved use to limited commercialè Maybe not; recently a few aviation insurance companies began to do a little deeper underwriting (analysis) to offer what I’ve come to call “Limited-Limited Commercial.”

What the insurance company does is offer a premium someplace between P&B and limited commercial. This seems to work.

Let’s take an Aeronca Champ used for P&B uses. The annual premium might be around $800 to $900. If this airplane were used for limited commercial uses, the annual cost of insurance might be somewhere between $4,500 and $6,000. Under limited-limited commercial use, where the airplane is used strictly for P&B and tailwheel transition training, the annual premium might be around $1,700 to $2,000; granted there would be no solo operations by the individual receiving dual instruction, but that isn’t really normal in transition training anyway. Likewise, teaching one or two students in a Cessna 172 might fall somewhere in the $3,000 to $3,500 range, versus $7,000 to $8,000 for full limited commercial uses.

I tip my hat to the aviation insurance companies that are willing to consider these types of limited-limited commercial flight-training operations.

To find out more about the NAFI Flight Instructor Insurance Plan call 866-243-NAFI (6234) or go online at www.NAFINet.org. NAFI Insurance Check-Outs is a special NAFI Member benefit. If you’ve got topic or question you would like to see addressed in NAFI Insurance Check-Outs, please send it to Bob Mackey at [email protected].