Do
all used car dealers need insurance?
Definitely. All used car dealers must have
some sort of garage policy that must be filed with the state by the
insurance company. A cancellation of their insurance policy will end
up in a suspension of their business license granted to them by the
state. Used car dealers insurance in Chicago is the
law.
What kind of insurance
do you need?
Mandatory
Coverages:
You
need a garage liability policy covering your
business as well as the employees and salespeople of your
business (who must be listed on the policy) in the event your
business actions as a car dealer cause damages to the
properties of others or harm to their body. Neither you, nor
officers of your business, or employees are covered under any bodily
injury or property damage. The minimum amount of garage
liability insurance in
Illinois is a split
limit of $100,000/300,000/50,000, also expressed as [100/300/50].
These numbers donate the maximum amounts that your company will pay
on your behalf for bodily injury per person, bodily injury per
accident, property damage per accident; respectively; in the
event that you, your business or listed employees cause any at fault
accident in connection with your dealership operations. Some
companies offer this minimum as a combined Single Limit of $350,000
bodily injury and property damage per accident, which is usually
more expensive than the split limit. Used car dealers that run
bigger operations should be concerned about liability limits. The
author recommends a million dollar as a combined single
limit.
Price
of garage liability is based on several factors including limits of
garage liability insurance, ZIP code, number of dealer plates
(some companies verify it with the state); and number, ages, MVRs of
each driver listed on the policy. A basic used car dealer policy
with minimum plates and most favorable terms to the issuing company
will be little less than $3,000 per year in the City of
Chicago. It is cheaper
in the suburban areas of
Chicago. However,
additional discounts may apply such as experience with no loss. Also
there might be additional extra charges if there are younger drivers
or if you have employees with bad driving
records.
Sometimes the City of
Chicago may also ask you
to show a proof of driveway insurance. Normally it is set at
$1,000,000 by the City. Certain garage policies issued at lower
liability limits in the City of
Chicago may be
endorsed, for a small additional fees, to meet the requirements of
the City of Chicago.
However in other situations, you might need to get a separate policy
for that if your policy does not provide that
protection.
Workers Compensation is a
very important coverage, one that is also very
well overlooked by used car dealers. You need workers
compensation for your car dealership because you have to meet your
legal and ethical obligations towards your business and employees.
Officers and owners of the business have the choice to include or
exclude themselves from workers compensation. In case they want to
be excluded (perhaps they get income and do not do any actual work
at the dealership) they need to sign exclusion form. Remember that
no employees/subcontractors/ officer of the dealership is covered
for bodily injury with regard to any at fault car accident related
to the activities of the dealers. Coverage for employees for these situations are provided
under a workers compensation policy.
Workers compensation premiums are based on
how much payroll you will pay in the next year. It has nothing to do
with the past. People covered include all the employees with W2s
(must include by law), independent contractors with 1099 (can be
excluded only if you can prove that they have workers comp
coverage on their own) and officers/ owners of the business
unless specifically excluded. For independent contractors (i.e.
drivers who transport vehicles from car auctions to dealership) they
must be included unless they show you that they have workers comp
coverage somewhere else. It is hard to estimate prices of workers
comp because it is based on future payroll. For that reason, your
insurance company gives you an
estimate in the beginning, then it
will audit your payroll towards the
end of the policy term, after which they will decide the final premium. For that reason, you
might be charged extra, or simply get a refund, at the end of the
policy period for the previous policy!
Bonds: A used car surety
bonds is normally requested for new used car dealer ventures
which are three years or less. The amount of the bond is
$20,000. The bond is some sort of guarantee by the bonding company
that the used car dealer will stick to the rules set by the State of
Illinois. A major
issue related to bond is its price. The price of the bond could vary
from $200 to $2,000 based on the credit of the Principal on the bond
(owner / partners of the dealership). Most companies will not issue
bonds for people with severe credit problems. Remember
that any government body may ask for a bond. For example, Cook
County Treasurer may ask a
Chicago used car dealer
for a bond to guarantee payments of sales tax! This could be
triggered by situations related to the experience of the tax
authorities with particular locations, old owners of business, or
new owners/ partners.
Main Optional
Coverages
There
are some optional coverages that used car dealership may be
interested in, based on their needs.
Dealer Open Lot refers to
the collision and comprehensive coverages on dealer owned vehicle..
There is normally a limit set on coverage per vehicle. So if a
dealer purchase a dealer open lot coverage with $150,000 per
location, that coverage may limit coverage per vehicle of $25,000.
Dealers must check their policies.
One
of the source of trouble is related to the Coinsurance Penalty
Clause. To save money, a used car dealer may get dealer open lot
coverage of $100,000 on his/her lot which contains $400,000 of used
vehicles. The coinsurance penalty ratio is the percentage which is
used to determine if a particular dealer is properly insured or not.
Coinsurance ratios range from 80% to 100%, and they are normally
stated on the policy declaration page. In the pervious example
if the customer has 80% coinsurance, then the dealer must maintain a
minimum of $320,000 to be properly insured. If the dealer keeps less
than that amount, then the company will make only partial payments
on the claims made, because the customer was paying
partial payments in relation to what he/she was supposed to
pay. The amount the company will pay is based on the percentage of
what the customer currently has [100,000] divided by the minimum
that was supposed to be carried [320,000]. In other words, the
insurance company will pay about 31.25% [100,000/320,000] of any
potential claim, after the deductible!
Your
business also needs Garage Keeper Liability, if you
work on autos that you do not own, such as customers who bring their
cars for minor repairs. Vehicles that you do not own require
physical damage coverage (comprehensive and collision) with certain
deductible ($500 to $1,000). Garage Keeper Liability insurance is
not needed if the dealer does not perform any maintenance or repair
work on vehicles they do not own. Garage keeper liability is not an
expensive coverage and is based only on the amount of coverage you
need. Normally the minimum amount is $25,000 per vehicle. The
difference between $25,000 and $50,000 in coverage is very minimal.
You can tell how much you need by knowing the average value of all
vehicles that exist on your lot which you do not
own.
There
are other optional coverages that used car dealers may need. These
include coverage on Building, Business Property, Security, Business
Income, Crime (Robbery etc.) and some forms of Professional
Liability.
--
by Ed
Sneineh,