Securing aircraft insurance isn't just a good idea—it's a mandatory step for obtaining financing. Lenders and insurance companies work hand-in-hand to protect the asset. Before a lender will release funds to close your loan, you must provide proof of insurance.

Why Lenders Require Insurance

The reason is simple: risk management. The aircraft is the lender's collateral for the loan. If the aircraft is damaged or destroyed, the lender needs a way to recover their investment. An insurance policy ensures that the value of the aircraft is protected, safeguarding both you and the lender.

Required Coverage: Hull and Liability

Lenders will mandate two primary types of coverage:

  • Hull Insurance: This covers physical damage to the aircraft itself. The lender will require the hull value to be insured for at least the full amount of the loan.
  • Liability Insurance: This covers damage or injury to third parties. Lenders will typically require a minimum liability coverage amount, often starting at $1,000,000.

The "Breach of Warranty" Endorsement

Your policy will need to include a special clause known as a "Breach of Warranty" or "Lender's Loss Payable" endorsement. This is a critical provision that protects the lender. It states that even if you (the owner) were to do something that voids your insurance coverage, the insurer must still pay the lender for a covered loss. This ensures the lender gets repaid regardless of the circumstances of the incident.

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The Process: Getting a Quote and a Binder

As soon as you have an aircraft under contract, you should engage an aviation insurance broker. They will gather your pilot history and the aircraft details to get quotes. Once you select a policy, you will receive an insurance "binder"—a temporary document that serves as proof of coverage. You will provide this binder to the lender and escrow agent to satisfy the insurance requirement and proceed to closing.