Understandably, the lending institute that helped fund your aircraft purchase wants to ensure your loan will be repaid in the event of an accident in which your insurance company denies the hull claim for some reason (usually because you violated certain policy requirements).
The most common example of such a violation would be a loss arising when your aircraft is being operated by a non-approved pilot. If, following an accident, it’s discovered a pilot not approved by your policy was operating the aircraft when the loss occurred, coverage could be voided and you’d be obligated to pay the lending institute the entire amount owed on the aircraft yourself.
If your policy includes breach of warranty coverage, however, the insurance company would pay the lender the proceeds from the claim in the event of such an accident.
Keep in mind, breach of warranty coverage must be specifically requested, and is often added at little to no extra cost.
A good question to ask potential lienholders before you sign on the dotted line is whether they’re willing to amend your coverage to Ground Not In Motion if your aircraft is laid up for an extended period of time (you’ll need their permission to avoid violating your loan agreement). Many lenders will flatly refuse (usually the larger ones). Although some will consider the request on a case-by-case basis to help you minimize insurance costs when your aircraft is not in service.
Visit www.aopainsurance.org or call 800/622-2672 for information on how AOPA can get you the best deal for your insurance needs.