Nearly every state in the country requires motor vehicle dealers to carry dealer insurance. Many states will require you to show proof that you have a dealer insurance policy before you are issued a dealer license. You will probably be required to obtain what is called a “Dealer Garage Insurance Policy”. A dealer garage insurance policy will protect you as you drive your vehicles back and forth from the auctions. It will also protect your customers while they are test driving your vehicles and will protect you if someone breaks their leg on your lot. It is called a garage policy since it protects your “garage” and all surrounding areas. You may have a policy on another business that you own but you must have a dealer garage insurance policy that covers customers driving your demos.
Some states only require you to hold a basic liability dealer garage insurance policy and some states will require that you carry a certain minimum amount of comprehensive coverage. Be sure to check with your state dealer license bureau to make sure you are carrying your state minimum requirements.
There are basically two types of dealer insurance: liability and comprehensive. Liability insurance will protect you if your customer wrecks one of you demos, but will not cover the replacement cost of your vehicle. It will only cover replacement costs of the other party’s vehicle. Comprehensive insurance, sometimes called full coverage, will cover the replacement costs of the other party’s vehicles along with your own. Comprehensive insurance is based on a dollar amount, not a per vehicle basis. Comprehensive dealer insurance will reimburse the dealer a certain dollar amount based on the value of a loss of any vehicle or combination of vehicles. If you have a $50,000 comprehensive dealer policy, it will pay you to replace the value of your inventory up to $50,000. If you have a $50,000 policy and suffer a $75,000 loss, you will only receive a reimbursement of $50,000.
Comprehensive dealer insurance is the coverage of choice if you live in an area that is susceptible to hail damage, tornados, or theft. More than one dealer has faced financial ruin when a hail storm devastates an entire inventory. I am sure you have heard of “Hail Sales”. If a hail sale dealer had comprehensive insurance, they have settled with their insurance company and are now selling the hail damaged inventory at substantial reductions.
When you begin calling around for dealer insurance quotes you will find out that many insurance agents do not offer dealer insurance policies and the ones that do can be quite expensive. Most dealer insurance policy providers charge more to a newly licensed dealer obtaining a dealer garage insurance policy for the first time. Dealers with less than three years experience normally pay the highest rates. Just be patient, after you are in business for one year, your rates should go down. Your second year in business should bring you another deduction in rates, and when you are a dealer operating for a third year, you will normally pay the same rates as all other experienced dealers.
You may get some sticker shock when you obtain your first dealer insurance quotes because it can seem very expensive. If you choose not to pay for your yearly insurance policy in advance most insurance agents offer some type of plan that will allow you to make payments. When I first obtained my dealer license I paid a little over $200 per month on a policy that cost $2,400 per year.
Don’t ever let the sticker shock of your first dealer insurance quotes keep you out of this lucrative business. Once you become established you will realize that your dealer insurance premiums are just a fraction of your income.
I am also very frugal and I obtain new quotes on my dealer insurance every March when it becomes due. When I call different insurance agents for quotes I find that one insurance agent may give me a quote of $1,500 a year when an insurance agent across the street from him is offering the exact same policy for $4,500 per year. There is a huge variance in the prices that insurance agents are quoting for dealer garage policies. There are only about four large insurance companies in the United States that offer dealer garage insurance. So if your agent does not sell dealer insurance you will probably have to use an insurance broker. You can ask some other dealers what insurance agent they use or you can find a dealer insurance provider in the back of this dealer training manual. I always recommend getting at least three or more quotes before signing on the dotted line.