"Roger Halstead" wrote

I think George was being a bit facetious with the lawn mower and
$1000, but it wouldn't take a lot of structural damage to reach half
the value of the hull. That means if your plane is worth 300,000,
you insure it for $150,000 and the damage is close to that, they can
total the plane, give you a check for $150,000, repair the plane and
sell it for $300,000. Pretty good profit for them and loss for you.

As to your example of not filing a claim until the cost exceeded half
the value, it would only guarantee the insurance company would total
it out and you'd be out half the value of the plane.

Never be under insured. It's as bad, or even worst than over insured
which is just wasted money. Under insured can be downright expensive.

Roger, you are correct in that over insuring is just a waste of money.
However the rest of your analysis is flawed.

In your example above, the 300K aircraft sustains 150K of damage.
In that case, whether the owner submits a claim or not, he is out
150K. If he doesn't submit a claim, he would spend 150K to fix the
airplane with no help from the insurance company. If he did submit
a claim, most likely the insurance company would total the aircraft
and give the owner a check for 150K (the insured hull value). So
for the owner to be able buy another equivalent aircraft he would
have to find another 150K somewhere. The insurance company doesn't
loose anything in this situation, but it doesn't make any profit either
as you have claimed. If it fixes the airplane the insurance company
can sell it for $300K, but it pays 150K to the insured and 150K to
the mechanics so it is a wash.

So the insured pilot is out 150K, but the original poster wasn't
suggesting the pilot do this unless he could afford that loss.

If the damage were more than 150K then the pilot is better off
submitting a claim, but he is still out 150K.

Now if the damage is less that 150K, then the pilot increases his
loss by submitting a claim and the insurance company could show
a profit by totaling the airplane, and this profit increases as
the damage gets less. If the claim is small enough, most insurance
companies would pay for the repair despite the potentially large
profit from totaling the airplane. Perhaps this is to protect
their reputation by avoiding questionable ethics, however it
would be foolish to count on that with so much at risk. For that
reason, declaring a hull value of half the airplane's value is not
such a good deal, because you are not getting a lot of value from
the insurance relative to its cost. (You wouldn't be able to submit
a claim in more than half of all accidents since they would cause
less than 150K in damage). Also you could be caught making the wrong
decision about whether to submit a claim because you miss-estimated
the damage. By the time you know, it might be too late to change
your mind. You would get a better deal if you could just
declare a large deductible. Most insurer's formulas would have
the premium declining dramatically with increasing deductible.
(I've done that with one of my cars). However I don't think many
aircraft insurers allow you to choose the deductible, so usually
only an all or nothing decision is practical regarding hull insurance.

~Paul