The Rand, Dollar and Under-Insurance (plus CGT)

Oh boy, I hear you sigh, here he goes again!

I make no apology for banging on about this same subject. In fact, it is probably more relevant today than it has been for many months.

If you own an aircraft and your insurance policy reflects an SA Rand sum insured, you are almost certainly under-insured as you read this article.

Even if you established the correct market value the last time you bought or renewed your insurance coverage, chances are that, by the time you have a loss and the Insurers come to settle, you will not get enough cash to replace your aircraft with one of similar type, age and condition.

And just to add insult to injury, you will probably have to pay the Capital Gains Tax that you almost certainly will not have taken into account in fixing your revised sum insured.

Most Insurers these days will allow you to specify a US Dollar value for your aircraft. You will still get to pay your premium in Rands, but the sum insured will be converted into Rands upon the date of loss, even if the Rand has continued to depreciate in the meanwhile.

By effecting your insurance coverage in US Dollars, you will have also established the beginning of a very important paper trail towards determining your CGT liability in the event of the future disposal (whether in a sale or an insurance settlement) of the aircraft.

Insurers always retain the right to declare a “constructive total loss” if the aircraft is so badly damaged that, in relation to the sum insured, repair costs are uneconomic. So, by underinsuring your aircraft, you are making a constructive total loss settlement more likely in the event of a loss, in which case you will be left “selling” your aircraft to an Insurer for less than its actual value, not to mention the question of Capital Gains Tax.

For advice as to how to go about establishing a US Dollar value for your aircraft, call Aircraft Assessing Services. For advice as to how to arrange Dollar-linked insurance coverage, call Dennis Jankelow & Associates.

However, now that you’ve been warned, don’t just sit there worrying….DO something about it!