Used Car Dealership Insurance Costs [Multi Coverage Savings]
Used car dealerships usually operate on relatively thin margins and have high operating costs, so it can be devastating if your inventory is damaged or otherwise unfit for sale. That is why you should consider getting insurance for your used car dealership. Insurance can protect your wares and reimburse you in the event of some mishap on the job.
Overall, used car dealerships can expect to pay about $1,500 a year for insurance needs. The average cost for general liability insurance is around $500 a year, and the average cost for commercial property insurance for a used car dealership is about $60 a month, or around $700 a year. Lastly, a standard workers comp policy costs about $1.25 per every $100 of payroll.
Used car dealership owners may also need to buy other types of insurance. So we put together this comprehensive guide on used car dealership insurance and its costs. We will cover the main types of insurance a used car dealership needs and other optional kinds of coverage.
What Kinds of Insurance Does a Used Car Dealership Need?
The typically used car dealership will need the following kinds of insurance.
- General Liability
- Commercial Property
- Workers’ Compensation
- Dealer’s Lot Coverage
- Surety Bond
We will cover each type of insurance and the relevant costs below. Keep in mind that these figures are average and your actual premium costs might differ.
General liability insurance covers any physical injuries that may occur at your dealership. For example, if a customer slips while walking through your lots and injures themselves, a general liability policy will cover any potential litigation or medical expenses.
According to Insureon, the typical general liability policy costs about $40 a month, or around $500 a year. About 500% of businesses pay between $500 to $1,000 a year for general liability insurance, and only a third of companies pay more than $1,000 a year. Most automotive businesses pick a general liability policy with $1 million in coverage.
The average deductible for general liability is $500, although many policies do not have a deductible for general liability coverage.
Most businesses require commercial property insurance to protect their physical building at their location. Commercial property will protect your business in the event your location is damaged by a natural disaster or some other kind of event. Practically every business that relies on a physical location and physical foot traffic for revenue needs a commercial property policy
The typical small business will pay anywhere between $600 to $1,000 a year for commercial property insurance. Commercial property policies come in three types
- Basic. Basic policies cover damage from fire, vandalism, smoke, and certain types of natural disasters. Natural disasters included in broad coverage are wind damage, hail strikes, lightning damage, and wildfires.
- Broad. Broad form insurance will also cover more common types of natural damage, such as flooding, water damage, snow damage, or falling objects like trees and branches.
- Special. These kinds of policies add additional protections that are not included in basic and broad coverages. For example, a special policy in Florida might add protections for hurricane damages.
Commercial property insurance costs can vary greatly depending on the type of property insured and the age of the property. Most used car dealerships have the main garage and an office building they need to be insured.
Keep in mind that commercial property policies may have different deductibles for different kinds of property.
Workers Compensation Insurance
A general liability policy will usually not cover any injuries employees sustain while at work. Workers’ comp insurance is meant to cover any legal or medical expenses that arise if a worker is hurt.
The costs of workers’ compensation policies are based on the total number of employees you have; more specifically, your payroll. The typical workers’ comp policy costs an average of $1.25 per every $100 of payroll. So for example, if your total payroll expenses were $5,000 a month, then you would expect to pay about $60 a month or around $700 a year for worker’s comp insurance.
Generally speaking, the size of your business determines whether you are legally required to carry workers’ comp insurance. For example, in Arkansas, companies with 3 or more full-time employees must have workers’ comp insurance. In contrast, California requires all businesses with at least one employee to carry workers comp.
A basic workers’ comp policy offers $100,000 per accident, $500,000 per policy, and $100,000 per employee.
Dealer’s Lot Coverage
Given that they sell high-value property, car dealerships face unique risks with their inventory. A dealer’s lot policy will cover any physical damage to your inventory, whether from inclement weather, theft, or vandalism. Dealer’s lot p[rotection will provide coverage for cars in an outside lot and there are options to protect cars in indoor lots as well.
There are two main types of dealer’s lot policies: collision and non-collision coverage.
Collision coverage will pay for any damage to a vehicle that happens from an accident while in operation. For example, if a customer is a test driving a car and backs into the wall, collision coverage would pay for the damages. Non-collision coverage protects your inventory from damages not caused by car accidents.
It is very hard to give an average figure for dealer’s lot policies as used car dealerships sell different types of cars and need different coverage limits. Generally speaking, policies offer coverage based on the total value of your inventory.
So many dealer’s lot policies require you to insure 100% of your inventory. If you do not, they will reduce the coverage limit by the same amount. For example, if you had 80% of your inventory insured and then a hurricane caused $100,000 in damages, the insurance company would only cover $80,000 in damages.
Additionally, most dealer’s lot policies have a deductible, so you have to cover part of the damages first before the policy kicks in.
Auto dealerships also need what is known as a surety bond. Surety bonds are used to protect consumers from illegal and unethical actions from businesses. A surety bond will cover you in case a customer claims that you misled them during the sales process.
The typical surety bond costs anywhere between 1% to 10% of the full bond amount. So if you purchase a surety bond for $10,000, you would pay anywhere between $100 and $1,000.
Business Owner’s Policy
One option for used car dealership owners is to buy a Business Owner’s Policy (BOP). A BOP is a type of insurance policy that bundles liability insurance with property insurance, the two most common types of insurance that business owners need.
The average business policy costs about $100 a month, or around $1,200 a year. The majority of businesses pay less than $2,000 a year for a BOP. Only about 5% of businesses pay more than $3,000 a year. Automotive dealerships that have high-value inventory will likely have to pay above-average premium costs.
A business owner’s policy can be a good way to bundle and save on insurance costs. It can often be cheaper to buy a single BOP than buy separate liability and property insurance policies.
Additional Insurance Coverage for Used Car Dealerships
Business Interruption Insurance
Say that a natural disaster damages your dealership and a large chunk of your inventory. A property policy might cover the damages, but what about any income you lose while your operation is shut down?
Business interruption insurance exists to reimburse you for any lost income if your business is put out of commission. Business interruption insurance costs are based on your projected revenue, so you will need to keep accurate reports on your finances to get adequate coverage.
Business interruption insurance starts at as little as $40 a month, but most businesses can expect to pay around $60 to $70 a month. Auto dealerships may have to pay more due to higher coverage limits.
Umbrella Liability Insurance
An umbrella liability policy extends the coverage limit on your general liability policy and can add additional events and perils to your coverage. Unfortunately, many providers are restricting coverage on general liability policies, so an umbrella policy can fill any gaps in your coverage.
The costs of additional coverage are based on your current limits and liability policy, but most business owners can expect to pay about $40 per month for every extra $1 million in coverage. Generally speaking, the more coverage you buy, the less expensive further coverage is.
Errors and Omissions Insurance
Errors and omissions insurance will cover you if a customer or client files a suit claiming you were negligent in providing your professional services. For example, if your dealership also does garage work, an errors & omissions policy can protect you if a customer claims faulty workmanship damaged their car.
Errors & omissions insurance costs an average of $1,000 a year for most small businesses. Only a small percentage of businesses will pay more than $3,000 a year for errors & omissions coverage.
Employment Practices Liability Insurance
We recommend that any business that has employees purchases employment practices liability insurance (EPLI). EPLI policies are meant to protect you from employment-related lawsuits. Many business owners feel like they do not need EPLI coverage but quickly change their tune if they get hit with a discrimination or wrongful termination suit.
EPLI coverage is fairly cheap and can start at as little as $300 per year. Most businesses end up paying around $800 a year for EPLI insurance. The costs of EPLI insurance increase the more employees that you have.
Garage Liability Coverage
If your dealership also has a garage, then you will also need garage liability coverage. Garage liability coverage is a special type of liability coverage that covers any accidents or mishaps in a garage. For example, a garage policy will cover if one of your mechanics damages a customer’s car while it is in the shop.
Garage Liability Usually costs more than general liability. The average business can expect to pay about $1,000 a year to insure garage operations.
What Factors Affect Used Car Dealership Insurance Costs?
There are many factors that can affect the price of insurance for your car dealership.
- Location. If you live in a city with high auto crime rates, then you will have to pay more for coverage. You will also have to pay more if you live in an area that is prone to natural disasters.
- Size/type of inventory. If you specialize in rare collector’s vehicles, then you will probably have to pay substantially more for a dealer’s lot policy or property insurance. Alternatively, if your inventory is comparatively less expensive, then you will pay lower premiums.
- The number of employees. The main thing that the total number of employees affects is the cost of workers’ comp insurance. Again, you may not be legally required to have worker’s comp insurance, depending on the state where your business is located.
- Past claims history. As is the case with all kinds of insurance policies, your past claims history will affect costs. The more past claims you have on your insurance history, the more expensive your premiums will be.
These factors can cause your premium costs to vary greatly. For example, a used car dealership in the middle of a high-crime urban area that sells classic restorations will probably have to pay a lot for insurance. Alternatively, a used car dealership in a rural area with low crime and temperate weather will pay much less per year.
Best Used Car Dealership Insurance Providers
Here is a list of the top car dealership insurance providers, based on our research.
Travelers is a major provider of commercial insurance and offer insurance packages for car dealerships. Travelers auto dealership policies include general liability coverage, errors & omissions, property coverage, workers’ compensation, internet liability, employment practices liability, and umbrella liability coverage.
Unfortunately, Travelers does not offer concrete figures for costs on their website. The best way to get pricing is to call a Travelers agent and request a quote.
Dealer Protection Group (DPG)
DPG offers competitive insurance packages for used car dealerships. DPG allows you to choose from garage liability, dealers’ open lot, and errors & omissions coverage. DPG policies are flexible and you can choose the coverage that you need.
In addition to basic coverage policies, DPG offers several special policies for auto dealers, including EPLI coverage, pollution coverage, cyber liability coverage, and crime insurance.
CoverWallet is an insurance agency that specializes in online quotes and policies. Cover Wallet offers very cheap policies, starting as low as $39 a month for general liability insurance. You can also get a bundled liability and property insurance policy starting at $49 a month.
Lastly, CoverWallet offers BOP protection and workers’ compensation starting at $49 a month. You can also create a custom plan and pick the protection level that you want. CoverWallet is all online so they have a very fast quote process. You can get pricing in just minutes after submitting an online quote.
The Horton Group
The Horton Group is another major commercial insurance provider that has plans and policies for auto dealerships. The Horton Group offers standard business insurance that includes general liability, workers’ comp, and umbrella liability coverage. The Horton Group also offers health insurance and employee benefit plans for larger businesses.
Like many insurance companies, The Horton Group does not provide pricing on its website. You will have to call an agent to get a quote.
Frequently Asked Questions
Do I need insurance for my used car dealership?
Yes, at the very least you need general liability insurance for your dealership. Depending on the state, you may also need commercial property insurance and, depending on the number of employees you have, worker’s comp insurance. Even if you are not legally required to purchase insurance, it can still be a good idea to have coverage.
How much does insurance for a used car dealership cost?
Used car dealership owners can expect to pay around $1,500 for insurance a year, assuming they have a general liability policy, workers’ comp, and commercial property insurance. You can get liability insurance and property insurance together in a BOP for around $1,000-$2,000 a month. Only a few businesses pay more than $3,000 a year for a BOP.
What kinds of additional coverage do used car dealerships need?
Each dealership is unique so they need different coverage. But most car dealerships should look into getting business interruption insurance, umbrella liability coverage, and errors & omissions insurance.
What does used car dealership insurance cover?
Dealership insurance covers general liability and commercial property. Dealership policies may also insure the cost of your inventory and provide compensation to workers who are injured while on the job. Dealership insurance may also include an umbrella liability policy to increase coverage limits.
Is used car dealership insurance worth it?
Yes. Even if you are not legally required to have it, your used car dealership will benefit from insurance. Car dealerships deal with extremely expensive inventory, so an insurance policy can save your business if a significant portion of your wares or property is damaged.
Auto dealerships have a lot of unique problems so they need specific insurance. Aside from legally required insurance, auto dealerships need policies to protect their inventory and wares. The good news is that most auto dealerships can get all their insurance needs for less than $2,000 a year, most likely less.
So, if you own a car dealership, make sure to examine your insurance options carefully and find policies that give the coverage you need.