"Paul Mennen" wrote:

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.

I think the point is that if they repair the aircraft they pay 150K
with nothing to show. If they total it they pay 300K but end up with a
300K aircraft, so they are 150K ahead.

If the damage was 100K they could repair it for 100K, or total it and
pay 100K repairs plus 150K for the hull, and end up with a 300K
aircraft again - again 150K ahead of where they'd be if they just
repaired it.

I think in this situation if the aircraft is reasonably repairable,
the insurance company is always going to be ahead if they total it and
repair and sell it themselves, rather than paying for repairs without
totalling the aircraft.