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Used Car Dealer Insurance Cost: 2021 Coverage Price Comparison

If you intend to start a business selling second-hand cars, you need insurance. Not only does this protect your inventory from vandalism and theft, but it also protects against claims from customers, employees, and the general public. All these issues may result in extreme financial loss, and that’s something no one can afford.

Generally, coverage depends on the policies you buy and other factors. However, as an indication:

  • General Liability Coverage costs around $450/year.
  • General Liability and Property Liability costs about $600/year.
  • Workers’ Compensation and Business Owners Policy costs about $600/year.

These prices are typical for a small dealership with less than 20 cars. Furthermore, it’s common to pay monthly for these policies.

The best way to ensure coverage for everything is to take out a comprehensive used car dealer insurance coverage designed for the type of vehicle you sell and the state you’re in. Typically, the policies included in used car dealer insurance packages include Workers’ Compensation, Product Liability, and General Liability, to name but a few.

This guide will discuss the average cost of used car dealer insurance and the types of insurance needed for adequate coverage against common risks.

How Much Does Used Car Dealership Insurance Cost?

There is no fixed cost for automobile dealers’ insurance. The average cost differs from provider to provider and on the insured risks. Moreover, it will be calculated depending on the:

  • Amount of coverage you require.
  • How many employees do you have?
  • Your location.
  • The size of your business.
  • How many cars do you expect to sell?
  • How much experience have you had in the trade?
  • The average value of your stock.
  • Whether you sell commercial vehicles
  • Your claim history.
  • And other factors.

However, for a small car dealership holding an inventory of fewer than 20 cars, you can expect to pay about $35 to $60/month for a General liability Policy that pays out a maximum cover of $1 million to $2 million. Of course, if you want a lower payout, you’ll usually pay less than this as a premium.

Moreover, if you intend to sell commercial vehicles, you might end up paying $1300/year for a cover of $100,000. However, remember you can only get accurate quotes by contacting a registered insurance agent. 

Factors That Influence Coverage Quotes

The quote for your premium will vary depending on a few factors

Coverage

The number of risks you identify and how many individual policies you buy will affect the premiums. For example, suppose you own a small dealership specializing in cheap cars without on-premise repair facilities. In that case, you will pay a smaller premium than a large facility, with a repair and service shop, and expecting a large customer footfall every day.

Claim history

Perhaps your company has submitted claims to your insurance company regularly over the past few years. There could be a few different explanations:

  • Your business address is in a rough neighborhood with high crime and vandalism rates.
  • You don’t identify problems with your procedures and fix them as necessary. For example, you might have poorly maintained uneven flooring. Therefore, you suffer numerous claims from customers.
  • Your dealership is outdoors rather than undercover. Dealerships that are open to the sky suffer damage to vehicles from hail, wild animals, and the local gangs climbing the fences. In contrast, if you keep the expensive cars in a showroom, you won’t have any of these problems.

These explanations, and more, suggest to the insurer that you are a lousy risk. Therefore your premiums will be high.

Company size

A large, used car dealership can usually afford the overheads needed to set up safety procedures and drills. Moreover, the profit margin on more expensive cars allows your company to pay for enhanced security, better fencing, a showroom, and more skilled employees.

You will also find that a large dealership can handle small losses without going through the insurance company.

Inventory value

The value of the pre-owned vehicles you stock will significantly affect your premiums. Insurance on vehicles with a total valuation of over $2 million will be much more than for cars with a total valuation of less than $500,000.

Why Do You Need Insurance For a Used Car Dealership?

By law, if you have a garage-related business, and an auto dealer is certainly garage-related, you must have at least a basic auto dealer insurance cover.

So how do you know if you come under the auto dealer category?

If you sell any of the following, you must get the insurance:

  • Cars.
  • Motorcycles.
  • Farm equipment.
  • Commercial vehicles such as trucks.
  • Trailers.
  • Vehicle detailing and repair.

This boils down to that you must have auto dealer insurance if you sell any motor vehicle, repair any motor vehicle, do car detailing or maintenance, or any other garage-related business.

Why have insurance?

But, we still haven’t explained why you need this cover. Auto dealer insurance does any of the following jobs:

  • It covers your company if any of your stock is damaged, stolen, vandalized, or lost.
  • It covers legal expenses that you might incur if an employee or a customer makes an insurance claim against your company.
  • Insurance helps you comply with the regulations. State laws require Workers’ Compensation and other policies.

Safety

You are legally responsible for your employees’ safety while on the premises or doing company business. Additionally, you’re also responsible for customers and other members of the public who are on your premises or who might be having a test drive.  You must also ensure you maintain all the cars and your other equipment is safe.  As a conscientious business owner, you always take outstanding care. However, sometimes mishaps occur, and you must be insured to cover yourself and the business.

For example:

  • Suppose a customer slips on oily, wet, or icy ground or trips on uneven paving or stairs when on your premises, you will be liable. They might sue you for damages and injury.
  • The cars in your care and those belonging to the company might be stolen or vandalized. If you’re not insured, you might lose a high proportion of your inventory.
  • You might have a computer and printer in the office, as well as expensive auto repair tools. It’s easy to steal these.
  • Someone might rob one of your cash tills. Or even worse, it might be a dishonest employee.

So, we now know that insurance is valuable and saves you a lot of money. But it doesn’t end there. Suppose you don’t have the correct small business insurance specified by the state and federal government. In that case, you open yourself up to hefty fines by the authorities and might lose your business.

Used Car Dealer Insurance Types: Policy Composition

Used car dealer insurance policies aren’t the same thing as personal or standard vehicle insurance. And it’s not the same coverage that you might have for a company car or commercial truck owned by the company. Furthermore, it’s also slightly different from standard general business insurance. So what is it, and how does it differ?

First and foremost, car dealerships have particular and unique insurance requirements. For example, the coverage you need depends on the state your company works from and your business details.  Even so, all dealerships require insurance, regardless of the services they provide, their location, and their size.

Car dealer insurance is what you specifically need, and it’s customized to suit every business. Let’s have a look at the list of insurance coverage that your auto dealership might need. Remember that the law requires basic coverage. But, you can pay extra for as much additional coverage as you want.

Examples include:

Dealer’s lot insurance

This insurance is the cover for the vehicles on your lot. It protects your vehicles from accidents they might be involved in. Furthermore, you can also add extra cover for extreme weather damage, vandalism, and theft.

Commercial property

Your premises and any buildings you might have might be damaged by various means such as vandalism, robbery, or weather damage. Commercial Property insurance covers the physical structure of your premises and its contents, such as equipment, computers, desks, etc., and helps to pay for replacements and repairs.

Commercial general liability

A business such as yours has members of the public walking around the lot while inspecting cars. Furthermore, they also come into the office to complete paperwork, etc. Therefore, you need insurance cover for third-party injury and personal property damage. This policy includes property, injury, and situations such as libel, slander, and copyright infringement. This insurance will cover all legal expenses and provide payment if you have to pay damages.

Workers’ compensation

Employers are always legally responsible for the safety of their staff. An employee might suffer a work-related injury and need medical treatment. Furthermore, the employee might not be able to work while recovering from the injury. Workers’ Compensation Insurance will cover all medical-related expenses and any lost wages.

Errors and omissions

Owners of used car dealerships are responsible for looking after their customer’s assets. If you don’t, you could be liable for significant financial payouts. Errors and Omissions Insurance covers any issues that might affect your clients’ assets.

For example, suppose you or an employee incorrectly completes a lease contract, and the mistake has a financial liability on the customer. Furthermore, it also provides coverage if your employee wrongly advises a customer about a particular car model. In these cases, and others,  Errors and Omissions Insurance covers the damages and any legal expenses.

Business Income Insurance

Business Income Insurance protects your business when you need expenses and payroll if your company has lost income due to natural disasters. This coverage has many variations, so you need professional advice to get the right policy to suit your business and its circumstances.

Business Owner Policy (BOP):

The Business Owner Policy is a ready made package that includes General Liability Insurance and Commercial Property Insurance. It’s a good way for small and medium-sized companies to make sure they have basic insurance cover.

Crime insurance

This insurance covers the company for the loss of income because of theft, burglary, embezzlement, forgery, etc.

Dealer Plate Insurance

This policy protects drivers and vehicles when out on a test drive. It’s essential to have this policy because drivers need standard car insurance to drive a car. However, at the time of the test drive, the dealership owns the vehicle. Therefore, using marked license plates, the dealer can prove that the required driver’s insurance is in place, even though the driver doesn’t yet have personal driver’s insurance.

Employment Practices Liability Insurance (EPLI)

This insurance protects an employer if they are subject to accusations of discrimination, harassment, wrongful termination, and other employment issues.

Garage Keepers Liability

Suppose you have the customer’s vehicle on your premises. For example, they might have bought the vehicle, and you are detailing it or changing tires. Garage Keepers Liability protects you and the vehicle if the car is damaged due to vandalism, extreme weather, theft or collision, etc., when under your company’s care.

Garage Liability

This insurance protects your company if your business operations damage a customer’s property or cause bodily injury.

Product Liability Insurance

This insurance protects your company from customers who have experienced injury or property damage due to a product that you sold them.

What Does Used Car Dealer Insurance Cover?

Typically, a used car dealer’s insurance policy may cover the following situations.

  • Loss of income due to embezzlement, forgery, theft, burglary, or any other crimes.
  • Personal bodily injury.
  • Third-party property damage.
  • If any of your business property is stolen.
  • If damage occurs due to vandalism.
  • When a product you sold to a customer causes injury.
  • Medical expenses and loss of wages for employees injured during a work-based activity.

Generally, used car dealer insurance covers the company for any claim against them from customers, members of the public, and employees for damage to their property or bodily injury, while on company property. Additionally, the insurance covers the company for loss due to acts of nature, theft, vandalism, and collision. Finally, it also covers claims against the company for personal injury or property damage that might occur while on a test drive.

Used Car Dealership Exposure & Risk Elements

Used car dealerships have an exceptionally high risk when employees and customers drive cars off company property onto the public roads.  To minimize the exposure of the company to risk, consider the following auto dealer insurance requirements. But, remember the list is not inclusive:

For employees & company property

  • All employees must have a current and valid driver’s license.
  • Regularly check the employees’ MVR.
  • Regularly maintain the vehicles and file the maintenance records. This procedure protects the company in the event of a claim.
  • Provide written procedures for personal and permissive use of company vehicles when used by employees.
  • When towing vehicles, there is more chance of damage to vehicles. Therefore, ensure tow truck drivers have relevant experience.
  • Regularly check tow trucks, and ensure hoists and tow bars comply with applicable regulations.

For customers

Ensure there are procedures in place for customers requesting test drives. Standard rules should include:

  • Have a company employee accompany the customer in the car.
  • Before the customer leaves the premises. Ensure their driver’s license is valid.
  • Verify all forms of identification before a customer takes a test drive.
  • When renting vehicles to customers, keep a copy of the customer’s driver’s license and insurance documents. Issue a contract stating that unlisted, unlicensed and drivers who are underage cannot use the vehicle.
  • Issue a hold-harmless agreement where the renter agrees to accept responsibility for the vehicle. Thereby limiting the company’s exposure to risk.
  • Get the customer to sign a document stating that they were offered a collision damage waiver, even if they didn’t accept it.
  • If renting a vehicle, inspect the vehicle with the customer and ask them to sign an inspection document to confirm any pre-existing damage.

General

  • To reduce Garagekeeper’s risk. When the dealership holds the customer’s vehicle for repair or servicing, keep the car keys in a locked container and only issue the keys to people with confirmed identification or employees who need to repair the vehicle.
  • Car dealerships have a high customer volume. Therefore, to prevent slips and trips, ensure the showroom floor covering is in good condition. Moreover, prominently display warning signs for uneven stairs and flooring or low ceilings.
  • Ensure all buildings have enough exits to satisfy the relevant fire codes.
  • Ensure there is backup lighting in case of a power outage.
  • Provide a waiting area for customers, as they must not enter service areas.
  • If the premises trade after dark, ensure there is adequate lighting, and provide adequate security.
  • Provide emergency plans for fire, natural disasters, etc.
  • Use chains and fences to protect the dealership from after-hours access.
  • When selling used vehicles, the vendor must comply with all the manufacturer’s instructions. Use a checklist procedure to ensure all vital functions work correctly, so there is less risk of return.
  • The company must keep all flammable liquids such as oils, paints, gasoline, and diesel in a properly bunded location to prevent spills to the environment. Moreover, keep substances in labeled containers, preferably the originals. Furthermore, keep a record of technical specifications for each flammable, toxic, or hazardous substance: and the safety requirements of each as specified by the Occupational Safety and Health Administration.
  • Ensure welding and other repair work are done in an area separate from flammable substances.
  • Spray paint vehicles in a spray booth with good ventilation, UL-approved electrical wiring, and fixtures.
  • Prohibit smoking near flammable liquids and gases.
  • Dispose of oily rags into a sealed metal container as they are a severe fire hazard.

Administration

  • Make back-ups copies of all records and store these off-premises.
  • Keep customer’s credit card details stored in a locked safe.
  • Perform background checks to ascertain criminal history on all employees who handle money.
  • Keep the minimum of cash on the premises and carry out regular bank deposits as soon as possible.

Auto Dealer’s Business Insurance Classification

Many government organizations, marketing companies, and others use SIC and NAICS Codes to categorize a company. Insurance companies also use these when determining which category your business should be in. The company classification numbers determine your company’s primary business when taking out insurance coverage.  Furthermore, SIC and NAICS numbers guide the insurance company to allocate the correct policies to comply with state and federal legislation.

SIC CODES

A SIC Code describes the company’s primary activity.

Typical SIC Codes  for this company category include:

NAICS CODES

A NAICS Code was the natural development after the federal government no longer updated the SIC Code system in 1987. In 1997, the government established the NAICS Code system across the NAFTA area (USA, Canada, Mexico).

Typical NAICS Codes include

ISO General Liability Codes

General liability class codes are code numbers used by insurance companies to categorize companies into degrees of risk. This method assists them when assigning coverages, exclusions, and the appropriate premium rate when selling General Liability Insurance.

Division G

Division G is a category used by the Occupational Safety and Health Administration (OSHA) to denote establishments selling merchandise.

Companies primarily selling used motor vehicles, gasoline service stations,  trailers, and boats are classed under Major Group 55. Used motor vehicle dealers are further categorized under Industry Group 5521. You will notice that these categories used by OSHA correspond to SIC Codes.

Questions to Ask

It’s essential to buy the correct insurance for your business. But, it’s even more important to buy it at the correct price. Therefore, we’ve put together a few tips to ask your insurance agent when choosing the proper coverage.

  1. Always compare quotes. Most insurance companies have different quotes, so it’s a good idea to compare from about five insurance companies.
  2. Identify the risks. You’ve probably noticed that many risks identified in this guide don’t apply to you. However, this isn’t a problem, as many policies give you the option to add or subtract additional coverage as necessary. Therefore, carefully consider your business risks and buy the appropriate cover.
  3. Always review what you believe you’re buying before you sign on the dotted line. Check that the policy offers enough coverage in monetary terms and also that the policy covers all appropriate risks. If there are any gaps, then you can always buy more coverage.

Compare Used Car Dealer Insurance Quotes

Buying used car dealership insurance costs a lot if you don’t know what you’re buying and aren’t aware of the possible risks to your business. Read this guide carefully and speak to a professional and registered insurance agent. Probably, the best idea would be for you to call us and speak to one of our agents who can provide a competitive policy that will cover everything you want for an affordable premium.