Why Do Car Dealers Need Insurance?
Suppose you’re wondering how car dealerships handle their car insurance or are looking to open up an auto dealership lot yourself. In that case, this is the post for you as we look at what kind of car insurance a car dealership will have to get to both operate and protect their assets.
Which Types of Insurance Does A Car Dealership Need To Operate?
Fortunately, auto dealerships don’t have to get an individual car insurance policy for each car they sell. Instead, they have to opt for more commercial-oriented car insurance designed for entire fleets.
Car dealerships should also carry all the necessary business and liability insurance to protect their business and employees.
We’ll look at the types of insurance, how much insurance coverage is needed, and how much it costs for businesses like a car dealership to get properly insured.
Are There Insurance Requirements For Auto Dealers?
State-specific car insurance requirements exist for all cars with a registered license plate. Car dealerships also have auto insurance requirements for the vehicles they are selling.
Car dealership insurance is an interesting case because it’s not the conventional commercial auto insurance businesses use to insure their vehicles. Dealers often use commercial fleet policies to protect their cars before they are sold.
For example, a customer may test drive before they buy a vehicle. A commercial auto insurance policy would cover the car damages if they were to get into an auto accident. Commercial auto insurance also provides general liability coverage.
How is Commercial Car Insurance Different From Personal Auto Insurance?
The bare minimum legal driving requirement in each state is the minimum liability auto insurance required, and almost every state requires all cars to have basic liability vehicle insurance.
Liability insurance protects drivers in the case of an auto accident. However, once a driver uses their car for work, their personal liability insurance policy doesn’t cover any damage occurring while on the job. For those instances, the vehicle driver will need commercial car insurance.
What Types of Insurance Do Car Dealers Need?
Now, let’s look into what specific kind of commercial car insurance coverage car dealers get for the cars on their lot, along with their business. Each one plays a role in insuring different aspects of the auto dealership.
Dealerships need the following commercial insurance:
Commercial liability insurance
General liability commercial coverage will insure against any injuries involving a customer while on the premises. In this case, it’s the car lot. Commercial liability insurance also protects against libel, copyright, and slander suits. Medical payments are also covered.
Employment practices liability insurance
Employment practices liability insurance insures the business when employee issues arise, like harassment, wrongful termination, and discrimination.
Errors and omissions insurance
Errors and omissions insurance covers businesses when they are performing a service. In a car dealership context, this is when representatives give recommendations to buyers that influence their purchase.
Business interruption insurance
If a natural disaster were to strike your business, business interruption insurance would cover the damages. It will also cover other lost expenses and income, like payroll and operating expenses, for the time being.
Worker’s compensation
No business is complete without worker’s compensation, wherein all employees' medical expenses are covered if injured. Yes, even car dealers need worker’s compensation.
Garage liability insurance
This commercial liability insurance is reserved for businesses that operate out of a garage. Property damage and liability expenses are all covered.
Garage keeper liability insurance
Garage keeper liability insurance insures a customer’s car while in a dealer service shop’s care. The new cost of car damage includes comprehensive hazards like weather and criminal damage like theft.
Dealer plate insurance
When a customer takes a car from the auto dealership on a test drive, its plate is still registered with the car dealership as the owner. Dealer plate insurance coverage provides auto insurance to this car and driver while being test-driven.
What States Have Car Dealership Insurance Requirements?
Auto dealers in most states can get some of the car dealership coverage we just went over.
However, Kentucky, Louisiana, Nebraska, and New Mexico require auto dealerships to carry worker’s compensation. Garage liability insurance is required in all the mentioned states except Nebraska. Meanwhile, general liability commercial insurance is required in Kentucky and Nebraska.
But keep your state’s laws from determining whether or not you should get all the dealership coverages.
If you have any of the following, then it is a good idea to buy more auto dealership insurance:
- Cars in your care for maintenance
- Loaned vehicles
- Inventory cars
- Brand-new cars that will be added to the inventory
- Customers can drive your vehicles and cause an auto accident
- Employees can drive customer vehicles and cause a car accident
What is The Cost of Car Dealership Insurance Coverage For an Auto Dealer?
Because commercial auto insurance premiums vary depending on a variety of criteria, we can’t tell you how much they’ll cost you.
Your auto dealer insurance premiums will be determined by the amount and sort of car dealer insurance coverage you want. The greater your auto dealership insurance policy’s limit, the more costly it is to provide that car dealer insurance protection.
Naturally, business insurance costs more than personal insurance. But there are still ways you can reduce the cost, such as asking what business insurance discounts you qualify for.
Some of the most essential factors of your business that determine how much you will pay for a commercial insurance policy are:
Location of the auto dealership
The insurance underwriting process always looks at your car dealership’s zipcode. If you live in an area prone to more crime or are the only vehicle dealership in town, you may see it reflected in your car dealer insurance rates.
Car dealership size
The more cars and products you have, the more you will pay for your car insurance dealership coverage.
Number of employees
This is the case for all types of businesses; your worker’s compensation cost will be based on your vehicle dealership’s number of employees.
Types of insurance coverage
The more commercial coverage you get, the more you will naturally pay for them.
What Can You Do to Lower Your Commercial Insurance Cost?
Car dealerships are usually not eligible for the typical personal automobile insurance discounts.
Here are things that you can do to lower your car dealership insurance costs:
- Background check employees: Give the insurance company a better idea of the risk of insuring your workforce.
- Mandatory employee training: You may get a business insurance discount if you show that you put your employees through the same training according to your design, as it shows they are equally versed in their jobs.
- Have a test drive route: Having a designated test drive route for your inventory cars can help keep car insurance risks and car dealer insurance rates affordable.
- Check customer driving history: Doing this makes you lower risk in the eyes of the insurance company because you are making sure your customers are low risk.
- Property security: Much like car insurance providers give car insurance discounts for safety features on vehicles, your commercial insurance provider gives business insurance discounts based on the security measures of your business property.
Shopping for affordable car insurance? Insurance Navy can help you out!
Get free cheap car insurance quotes online or call Insurance Navy at 888-949-6289 today to speak with an insurance expert. We’ll get you insured for driving in no time!
