I have done the same set up before. As long as each person is listed as
a board member of the corp, they are covered for liability. The actual
benefit of being in a corp is probably not much and I would never do it
again. The paperwork requirement is annoying and in some states
(California for instance) you are charged $800/yr for the priv of being
incorporated until you completed their exemption process which takes
about a year.

You are correct that if you crash land because of an engine failure the
insurance covers the cost of the damage as a result of the landing but
NOT a new engine. If you think about it, keeping the engine running is
your responsibility, no the insurance co. However, in a partnership, if
the engine throws a rod or just needs new cylinders (discovered at
annual) you must have already put together a plan for who pays how
much, reserves, etc.

-Robert