This is the first question asked when an Insured is seeking UAS hull physical damage coverage. How you answer this question will greatly affect your cost of coverage what will happen in the event of a partial or total loss, so it is important to understand how to determine the current value of your UAS.
Unlike standard automobile insurance policies, UAS insurance policies provide physical damage coverage on an “agreed value” basis. You “agree” with the insurance carrier to a stated hull value limit that reasonably represents the value of your UAS. This may not be an easy task these days, as the value of UAS can change on an hourly basis. Or, you may be an early adopter who purchased your UAS on the date of release forcing you to carry higher hull limits.
The danger of over-insuring is inherent in the “agreed value” UAS insurance contract. This is particularly challenging when your UAS suffers a partial loss. The insured value of your UAS becomes a key factor in whether the insurance company decides to repair the aircraft or consider it a total loss. The insurance company will take into account the cost of repair, the salvage value and the insured value when determining its course of action.
Consider this example: You are the owner of a 2016 DJI Inspire. When you bound coverage, you agreed that you would insure your aircraft for $3,000 despite the fact that the market value was really $2,000. The motivation behind this decision may have been your actual retail purchase price, bad advice or simply the fact that you were not being realistic about the true value of the UAS in the market. Your UAS then sustains significant airframe and camera damage after a hard landing or hitting an object while in-flight. A repair facility has estimated that repairs to your UAS will cost $1,200. “Salvage value” in this scenario is $800 including transmitters (market value minus cost to repair = salvage value).
It is now the responsibility of the insurance company to determine its liability as relates to this loss. Is it a partial or total loss? Total loss, as defined in most insurance contracts, means any physical damage loss for which the cost to repair, when added to the salvage value, equals or exceeds the insured value (agreed value) of a scheduled UAS. In this scenario, the aircraft was insured for $3,000 and is to be repaired because the repair cost added to the salvage value ($2,000) is less than the agreed value that the owner decided to carry. Insuring the aircraft for the market value would have resulted in a total loss because the cost to repair added to the salvage value would have equaled the agreed value. In the event of the total loss, you would transfer ownership of the insured UAS to the insurance company and the insurance company would write a check for the agreed value minus any deductible.
Consider the dangers of over-insuring your UAS. Over-insuring your UAS comes with unwanted consequences:
- Paying higher premiums for coverage under the policy
- Likely that physical damage premium will be fully-earned
- Deductible costs are out of pocket
- Repair of a UAS that should be totaled
- Ownership of a UAS with damage history and thus lower resale value
- Questionable safety of the repaired UAS
Remember to review your UAS policy with your insurance broker regularly. There are a number of resources to help you determine the current value of your UAS, including the third-party valuation services and current retail and resale information.