By Daniel Kane, Everette Aviation LLC
Introduction
Every aircraft owner knows the number on their hull policy. Far fewer know what that number legally is — and the difference only reveals itself at the worst possible time, after a loss, when the owner discovers what the policy actually promised to pay. The distinction that governs the answer is one of the oldest in property insurance: agreed value versus actual cash value. Aviation resolved this question differently than the auto and homeowner markets most people know, and the way it resolved it quietly moved the entire valuation burden from claim time to binding time — which is exactly where the appraiser enters the story.
This article explains what each coverage basis means, why aviation hull insurance runs almost entirely on agreed value, the traps hiding in the middle ground, and why the agreed value approach makes the number you choose at renewal one of the most consequential valuation decisions an owner makes.
The Two Promises
Actual cash value (ACV) is the familiar basis from the automotive world: at a total loss, the insurer pays the property’s market value at the time of loss — determined after the loss, by the insurer’s valuation process, subject to negotiation and dispute. The number on the policy is at most a ceiling. If your car is destroyed, nobody pays what you insured it for; they pay what an adjuster’s comparables say it was worth yesterday.
Agreed value (in aviation practice, the standard hull basis) works the other way: the insurer and insured fix the hull value when the policy is bound. At a total loss, the insurer pays that figure. No post-loss market appraisal, no depreciation argument, no negotiation over what the aircraft “was really worth.” The valuation question was asked and answered at binding, and the claim simply executes the answer.
The difference sounds procedural. It is actually a complete reallocation of risk and burden:
- Under ACV, the owner bears valuation risk at claim time — the risk that the insurer’s post-loss valuation comes in below expectations, that the market moved, that the aircraft’s records and upgrades aren’t fully credited by an adjuster working from pricing-guide baselines.
- Under agreed value, the owner bears valuation risk at renewal time — the risk of setting the number wrong, in either direction, and living with the consequences when a loss occurs.
Why Aviation Chose Agreed Value
Aviation didn’t adopt agreed value out of generosity; it adopted it because ACV works poorly for aircraft.
ACV valuation depends on deep, liquid markets with abundant comparables — conditions the car market satisfies and the aircraft market frequently does not. Aircraft are heterogeneous in ways that dominate value: this airframe’s component times, that one’s damage history, program enrollment, mission equipment, records quality. Two “identical” aircraft can be a million dollars apart for reasons an after-the-loss adjustment process is badly positioned to resolve, especially when the evidence — the aircraft itself — is now a wreck. Post-loss ACV fights over aircraft would be long, expensive, and speculative for both sides.
Agreed value trades all of that for certainty. The insurer knows its maximum exposure to the dollar; the owner knows exactly what a total loss pays; lenders — who require hull coverage on financed aircraft and are named as loss payees — know their collateral protection precisely. Everyone prices the deal on a known number. The lingering exposure is different: the number itself can be wrong.
The Middle-Ground Trap: “Stated Value” Isn’t Always Agreed Value
A caution that belongs in bold in every owner’s file: not every policy that displays a hull number is a true agreed value policy. Some coverage forms — more common outside mainstream aviation markets, in surplus lines, or in older forms — are written on a stated value / stated amount basis, under which the insurer pays the lesser of the stated amount or the actual cash value at the time of loss.
Read that again, because it is the worst of both worlds: the stated amount caps the recovery, while the ACV mechanism preserves the insurer’s ability to pay less. An owner who insured at $2 million under such a form, believing they had locked in $2 million, can receive a materially smaller check if the insurer’s post-loss valuation comes in lower — and the premium was likely calculated on the full stated amount all along. The words that matter are in the loss-payment clause, not on the declarations page. If your policy pays “the lesser of,” you are not on agreed value, and the number on your dec page is a ceiling, not a promise.
Living With Agreed Value: The Number Is Now Your Job
Under agreed value, claim-time certainty is purchased with renewal-time responsibility. The consequences of getting the number wrong run in both directions, and neither is hypothetical:
Underinsurance — the agreed value lags a rising market — means a total loss pays out less than it costs to replace the aircraft. In market segments that appreciated sharply in recent years, owners who rolled their hull values forward unchanged from renewal to renewal are carrying exactly this gap. It also distorts the claim itself: as we covered in our article on constructive total loss, a low agreed value makes the insurer’s repair-versus-total math tip toward totaling the aircraft, so the underinsured owner both loses the aircraft more readily and receives a check that won’t replace it.
Overinsurance — the agreed value exceeds what the aircraft would bring — means paying premium on value that isn’t there, year after year. It also creates friction the industry politely calls moral hazard: hull values conspicuously above market invite harder underwriting questions, and at claim time an inflated value pushes the repair/total decision toward repair, handing the owner back a damage-history aircraft when the honest economics might have favored the total. Insurers underwrite against this by scrutinizing requested values — which is itself a reason a supportable number binds more smoothly than an optimistic one.
The mission equipment blind spot. On working helicopters, the hull number must be built, not guessed: airframe plus engines plus the hoist, the medical interior, the sensors, the floats — or those items scheduled separately with their own values. An EMS helicopter insured at a “hull” figure that quietly reflects a bare airframe is underinsured by whatever fraction of its value flies in the mission equipment, which on some configurations approaches half. Allocating value between airframe and equipment is appraisal work, and it is precisely the kind that prevents the ugliest total-loss surprises.
Market movement between renewals. Agreed value is fixed for the policy term, but markets are not. A defensible practice — and the one lenders and sophisticated fleet operators follow — is to re-benchmark hull values at every renewal against current market evidence, and mid-term after events that change the aircraft’s value materially: a major inspection completed, an engine overhauled, a significant upgrade installed, or a market that has visibly repriced the type.
Where the Appraisal Fits
Agreed value coverage doesn’t eliminate the valuation exercise; it relocates it. Instead of an adjuster’s contested opinion after the loss, the system runs on the number set at binding — which means the quality of that number is the quality of the coverage. An independent, USPAP-compliant appraisal at binding or renewal does three jobs at once: it supports the requested hull value with the underwriter (smoothing placement, particularly on unusual aircraft, high values, or hard-market renewals); it documents the aircraft’s pre-loss value and configuration in a form that pays dividends in any future claim; and it surfaces the allocation questions — equipment scheduling, appreciating components, market drift — before they become claim-time disputes. For lenders, the same appraisal confirms that the required hull coverage actually protects the loan balance rather than merely matching it on paper.
Conclusion
Agreed value is one of aviation insurance’s genuine kindnesses to aircraft owners: it replaces a post-loss valuation fight with a promise fixed in advance. But the promise is only as good as the number, and the number is only as good as the valuation discipline behind it. Verify that your policy truly pays agreed value rather than “the lesser of.” Build the hull figure from what the aircraft actually is — equipment, components, configuration — rather than rolling last year’s number forward. And re-benchmark it against the market at every renewal, because the one thing agreed value cannot do is update itself.
If your renewal is approaching and the hull value on the dec page hasn’t been tested against the market in a few years — or your working helicopter’s coverage has never been reconciled against its mission equipment — Everette Aviation can provide the supportable number the coverage deserves.
Everette Aviation LLC provides certified, USPAP-compliant aircraft and helicopter appraisals nationwide. Daniel Kane is an ASA Accredited Senior Appraiser and FAA-certificated A&P mechanic with Inspection Authorization. Contact us at everetteaviation.com to discuss your appraisal needs.