Plane & Pilot
Tuesday, May 7, 2013

Dream Big: Buy A Plane

Financing and insurance are the first steps in making your ownership dream come true

In all cases, the best advice for prospective buyers is to get pre-approved. Pre-approval for financing allows a buyer to act quickly if the right deal is found and gives the buyer time to look for an aircraft with the security that financing is ready.

There are some basic requirements to meet before you may qualify for an aircraft loan. Typically, these are:

credit Score of 700 or better
debt-to-income ratio of 35% to 45%
a 15% to 20% down payment
sufficient "reserve" funds so the aircraft purchase doesn't leave you with empty bank accounts
a 20-year payback term is typical, similar to a mortgage

Insurance is where many owners are misinformed and where the greatest confusion exists. We spoke with Greg Sterling, senior vice president and global product line manager for AIG, one of the biggest insurers in general aviation, to help dispel the myths about insurance.

Sterling explained that the essence of an insurance policy for an aircraft is that the insurer is weighing the risk that it may have to pay out on a claim in the event you damage the aircraft. The insurance company charges you a "premium" (or fee) in exchange for its acceptance of this risk. The greater the risk, the more expensive the insurance premiums will be. The factors that affect your insurance premiums include the type of aircraft, time in type, general pilot qualifications and ratings, and the nature of your operation. An aircraft insurance policy covers two areas: hull coverage and liability coverage.

The term "hull coverage" originated from the fact that the world's first aircraft insurance policies were based on maritime (ships and boats) policies, because they were the closest thing available at the turn of the century. This covers physical damage to your aircraft and comes in three types (in order of cost):

Full flight coverage (this covers the aircraft at any time, sitting still or flying)
Ground and taxi coverage (refers to any time the aircraft isn't flying)
Ground, not in motion (exactly what it says—the engines can't be operating)


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