A Breach of Warranty (BOW), also knowns as lienholder extended coverage, is more than a simple loss payable to the bank. It is a requirement by most aircraft lenders to be included in an aviation insurance policy. The Breach of Warranty is an endorsement that extends coverage to the lienholder in case your insurance policy terms were breached. For example, an unapproved pilot flies your aircraft an has an accident. Your insurance carrier could deny coverage based on breaching the pilot warranty. However, because your policy includes a Breach of Warranty to your lienholder, the bank would still be paid for their loan balance.
The insurance carrier assumes you made a 10% down payment on the aircraft purchase based on typical lending practices. Therefore, most Breach of Warranty endorsements for your bank only covers 90% of the declared value on the policy. This is often referred to as a “90% Breach of Warranty”. It is in the lienholder’s interest to have the entire loan covered, so they will pay special attention to the insured value to verify you have enough insurance to cover their loan.
Note: If the bank loan is paid under the Breach of Warranty endorsement the aircraft owner is still responsible for paying off the lien, which now belongs to the insurance company.
To meet the Breach of Warranty requirements on your loan, take the loan value and divide it by .9 to determine how much insurance coverage (hull value) you need.
To learn more about the Breach of Warranty call the knowledgeable agents and pilots at Aviation Insurance Resources (AIR) at 301-682-6200 or request a quote online to obtain an aircraft insurance quote today!
