Life insurance for pilots: it’s time to review policies
If aviation insurance news has been mostly bad since September 11, there is still one small bright spot in the industry. Life insurance premiums for corporate pilots have either remained stagnant or actually decreased since last September. And aviation operators have an increasing variety of choices for providing life insurance for their employees. Industry sources suggest that companies and individual pilots who have not reviewed their life-insurance policies within the past five years should do so now to take advantage of the lower rates.
Obtaining life insurance while working as a pilot can be frustrating at least and downright infuriating at worst. Many insurance companies tack on additional premiums called flat extras for pilot applicants without consideration to type or use of aircraft, and force them to fill out long questionnaires about their aviation activities. Some insurance companies will provide life insurance while the pilot is at work in the air and exclude leisure flying from the policy. Other insurance companies will reject pilot applications altogether.
“The biggest challenge that the corporate pilot faces when obtaining life insurance is that the typical insurance company doesn’t understand aviation,” said Bill Fanning, co-owner of Pilot Insurance Center (PIC) of Addison, Texas. “They see the word aviation and assess the same level of risk, whether the applicant is a corporate pilot flying a GV or an air ambulance helicopter pilot.”
Still, few can argue the importance of providing a measure of security for the employee’s family should something happen to a pilot or flight attendant in the air or on the ground. Because of the hassles associated with aviation personnel obtaining their own life insurance, corporate flight departments and operators that provide this benefit have an extra edge when it comes to recruiting and retaining their employees.
Although many aviation departments of larger companies provide life insurance as part of the company’s overall benefits package, smaller flight departments might not be so lucky. The parent company may not offer a life-insurance package to its employees, or the underwriting insurance company may balk at insuring pilots and flight attendants if the rest of the employee pool is composed of low-risk office workers. But corporate flight departments or other operators in this position can still purchase life insurance for their employees from a number of sources.
For All or For One?
One of the first decisions that an aviation department manager must make when purchasing life insurance is whether to purchase group insurance for all of the department’s employees or individual insurance for each employee. Group insurance provides one rate for all employees, regardless of health or employment status, while individual insurance takes into account the applicant’s health and status.
Chappell, Smith and Associates (CSA), an aviation-friendly insurance broker based in Nashville, Tenn., that also handles non-aviation commercial accounts, provides life insurance as part of an overall benefits package available to aviation firms and corporate flight departments.
“We write a lot of hull and liability coverage for various aviation companies, and many of those companies will ask us to provide the employee benefit packages as well,” said Edward Brooks, CSA vice president. “We can write group rates for an operation as small as 25 employees, who then are not medically screened and don’t have to fill out the standard aviation questionnaire.”
One problem with group rates, however, is that they are priced to cover all employees equally, taking into account the likelihood that someone in the group is unhealthy. Therefore, under a group plan a 50-year old pilot who smokes pays the same rates as a 35-year-old non-smoking flight attendant.
“Pilots are generally healthy people, or they wouldn’t be flying,” said Fanning. “Normally, a corporate flight department wouldn’t want a group policy. Group means that the insurer must take everyone in the group, including the unhealthy ones, which increases the rates for the healthy employees. If you’re a pilot and you have group rates, those group rates aren’t doing you any good.”
PIC offers individually underwritten term life-insurance policies for corporate pilots and flight attendants that can be billed as a group for easier department bookkeeping. Individuals must medically qualify for the insurance. A 20-year term policy for a 45-year-old pilot with a $500,000 benefit runs $710 per year. Contrast this with the same policy from a large insurance company like State Farm, which can run as high as $1,280 per year, according to PIC figures.
“We’ve actually lowered rates since September 11,” said Fanning. “Life-insurance mortality rates have been declining across the board, and we’ve reduced rates four times in the past two years. Anyone who owns a policy more than five years old should really look into a new policy.”
Since the PIC insurance is based on individuals, the company does look at the aircraft and operation type before fixing a premium price. Healthy pilots flying corporate jets generally receive a Class I premium, the lowest premium available. However, PIC does assign a flat extra for nonstandard operations, such as a turbine helicopter air ambulance operation. Fanning said PIC does offer a discount on the flat extra, however; instead of the industry standard $5 per $1,000 of coverage, PIC’s flat extra is $2.50 per $1,000.
An air-taxi operation flying piston aircraft need not look to PIC for coverage. “They must be turbine,” said Fanning. PIC also will not cover pilots who engage in “hazardous” extracurricular activities such as airshow flying, although Fanning says once a policy is approved, it cannot be rescinded by PIC even if the pilot starts flying in airshows after the policy is written.
The NBAA Plan
For aviation departments that have one or two unhealthy employees or who operate piston equipment, the NBAA group life-insurance plan may be the better route. NBAA offers the group plan to its members through Atlanta-based Harvey Watt and Company. The plan, offered alongside NBAA’s loss of license plan also offered through Harvey Watt, provides a standard policy rate for all corporate pilots based on age, regardless of type of aircraft or operations.
Premiums are based on five-year age increments. The premium for a 45-year-old non-smoking corporate pilot is $636.00 per year. However, this cannot be strictly compared with PIC’s insurance rates since PIC offers term rates ranging between five and 20 years; the NBAA plan is essentially a five-year, or fewer, term since the premium will go up when the insured hits the next milestone birthday.
“There are no aviation exclusions under the NBAA policy,” said Todd Browning, executive vice president of Harvey Watt. “The rates are the same for helicopter pilots as they are for corporate jet pilots, and are also the same for pilots who engage in hazardous avocations like air racing or hang gliding. The policy also covers you when you fly your own private aircraft, even if it is something like an experimental gyrocopter.”
The NBAA policy has a $500,000 benefit limit, but policies can be purchased for as little as $50,000 up to the limit. Harvey Watt also offers this plan to corporate pilots who are not members of NBAA, although the insured must “get paid for flying.” The plan is not available to general aviation pilots who are not flying for a living.
Covering Flight Attendants
For corporate flight departments who also have flight attendants, obtaining a standard policy that is fair to all can be a challenge.
“Flight attendants tend to slip through the cracks,” said PIC’s Fanning. “Insurance companies somehow think that if there is an airplane crash, the pilots will die but the flight attendants will walk off the airplane. Being a flight attendant does not send up a red flag like being a pilot does, so they can typically get the Class I rates, assuming they qualify medically.”
Browning agreed that flight attendants should generally not be placed under the same group policy as the pilots. Not only are flight attendants not covered under the NBAA life insurance plan, but the flight attendants would be penalized by paying the same higher rates as the pilots under any other group policy.
“A corporate flight department would usually be better off splitting the pilot group from the flight attendant group,” said Browning. “The flight attendants would usually get true individual policies, and would have to fill out the typical aviation questionnaire. Of course, on what type of aircraft they fly and where to could affect their rates as well.”
There are basically three ways to handle life-insurance premium payments: offer the benefit but take the entire premium out of the employee’s paycheck; share the premium expense with the employee; or pay the entire premium. However, tax laws limit the amount of life-insurance coverage that a company can provide without taxing the employee’s benefit. According to Browning, some aviation departments are getting around this by having the employee pay the entire amount of the premium, then raising the salary of the employee by approximately 125 percent of the premium amount to cover the premium and tax liability.