In a world of uncertainty, life insurance remains a priority for many business aviation pilots. Unfortunately, it also remains a much misunderstood subject.
Part of the problem is that most of the companies writing life insurance for pilots have minimal understanding of the risk involved in flying a business aircraft. As a result, many decline to provide coverage. Or if they do, the rates are out of proportion with reality. Worse, the customer is often poorly equipped to make an intelligent decision regarding coverage and rates.
According to Bill Fanning, president of Pilot Insurance Center (PIC) in Addison, Texas, a surprising number of pilots actually have life-insurance policies that contain an “aviation exclusion” rider that would void the coverage if death is the result of an aviation-related accident. Ironically, Fanning said his company has found similar riders on the group plans that major airlines provide for their own pilots. The policy, he said, excludes coverage if the insured dies while flying a general aviation aircraft.
He noted that pilots tend to believe that their career choice is a determining factor in acquiring life insurance. The truth is that underwriters consider numerous factors, whether or not the applicant is a pilot.
Fanning said he declined to insure a recent applicant who was a Part 135 Gulfstream pilot making regular trips to the United Arab Emirates and Saudi Arabia in a U.S.-registered aircraft. “It wasn’t the fact that he’s a pilot, but that he was traveling regularly to countries on the ‘watch’ list of the major insurance underwriters.” Since 9/11, explained Fanning, the insurance industry as a whole is controlled by reinsurers that write the guidelines, followed by the underwriters and their brokers and agents.
In addition to travel to high-risk regions of the world, factors determining rates include aircraft type, total flight hours and hours in type, the employer’s safety record and the areas of operation.
As for life-insurance rates in general, they have been declining steadily for years. Fanning said PIC has lowered its rates every year for the past four years. It is typical now for a healthy, 45-year-old male to buy $500,000 of 10-year, guaranteed level term life insurance for about $42 a month through a traditional local broker.
PIC was launched in 1996 as an insurance broker specializing in general aviation coverage. The company has since negotiated with a number of highly rated insurance underwriters to provide better coverage for individual general aviation pilots. In fact, aviation broker Harvey Watt & Co. of Atlanta recently turned over its individual pilot business to PIC. Harvey Watt is the company providing pilot loss-of-license coverage through NBAA.
NBAA is currently considering PIC to provide individual pilot life insurance to the association’s members. Joe Ponte, v-p of membership, marketing and regional programs, said the association is “looking into the possibility of offering its members a solid term-life insurance program, and PIC’s proposal is under review.”
Fanning pointed out that one of the more favorable life-insurance programs offered recently is “refundable-premium term life.” Put simply, the applicant buys guaranteed-term, refundable coverage for a period of 20 years, at the end of which the premiums paid are refunded in full. For example, a standard $500,000, 20-year guaranteed-term policy might cost approximately $710 a year in premiums. At the end of that period, the insured would have paid a total $14,200. The refundable term coverage would cost $1,640 a year. The difference is that at the end of 20 years the insured would receive a check from the company in the amount of $32,800.
Tips from the Pros
To get the best buy in term (for the period of time agreed upon) life insurance industry experts suggest the following:
- Make sure the policy does not have an “aviation exclusion” rider that would void the policy if the insured dies in an aviation accident.
- Choose a policy that is right for your particular circumstances. If you are protecting your income, look at the number of years you expect to work. The first-year premium tells you little about your total cost. While the 10-year term might be inexpensive at first, the premium can rise more than 200 percent in year 11.
- Review your coverage at least every five years. Life-insurance rates have declined substantially over the last 10 years and you may find the same coverage or better at a lower rate.
- Get the best possible premium class–super-preferred, preferred, plus, preferred, standard, preferred smoker, standard smoker. Be sure the broker or agent defines exactly which “preferred” class you are buying.
- Do business only with an A-rated company or better. Life insurance is nothing more than a promise, and a promise is only as good as the person or company making it. An A+++ rating is the best.
- Don’t cancel any existing life insurance until you have the new policy in hand.
- The more you buy, the cheaper the cost. Life insurance is sold in “bands.” Rates per thousand dollars tend to decline at common break points: $250,000, $500,000, $1,000,000 and $3,000,000. In many cases, it is cheaper to purchase a $500,000 policy than a $450,000 policy because you have the advantage of a pricing discount.
- Don’t purchase multiple policies. Determine how much coverage you need and buy one policy. Each policy has a policy fee, and multiple policies typically entail multiple fees. If you have multiple beneficiaries, divide the coverage by naming the individuals and the percentage to which they are entitled upon your death.
• Pay the premium annually. Life-insurance companies don’t divide the annual premium into 12 monthly premiums. Instead, they factor it, charging a finance fee for anything less than an annual payment. For example, a $1,590 annual premium would factor monthly to $139.13, or $1,669.56 a year.
Fanning believes that the risk inherent in an aviation career has been misunderstood for years by the life-insurance industry and most companies charge pilots too much. He urges that anyone looking for life-insurance coverage select his or her broker or agent carefully. “Look for someone who understands the business aviation industry.”
He pointed out that since more than 80 percent of all general aviation accidents are directly attributed to pilot error, the key in providing life-insurance coverage is to identify the “at risk” pilots.