What is Aviation Insurance? - Insurance Navy. Aviation Insurance is a specialized type of insurance coverage designed specifically to cater to the operation of aircraft and the risks involved in aviation. This insurance policy covers damage to aircraft, legal liability for passenger injuries, and damage to people or property damage on the ground. Aircraft insurance could be divided into the following types of coverage: 1. Public Liability Insurance: This covers aircraft operators for the damage their aircraft inflict on third-party property, such as houses, cars, crops, airport facilities, etc. 2. Passenger Liability Insurance: This covers passengers on board the aircraft for accidental bodily injury or death. It also provides coverage for their baggage. 3. 4. 5. 6. 7. Aircraft Insurance policies are crucial for both commercial and private aircraft owners.