Car Dealership Insurance Requirements (The Ultimate Guide)

Car dealership insurance requirements differs from personal insurance. Dealerships are not required to individually insure every vehicle on their lot. However, they need certain kinds of overall coverage policies that include the lot vehicles.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 26, 2021

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Car Dealership Insurance Summary
Summary DetailsFrom the Experts
Car dealerships (like other businesses) are required to carry insurance coverage for their business and their assets.National Federation of Independent Businesses
There are options for auto dealer insurance, including garage keepers liability, garage liability, general liability, and dealer plate insuranceInternational Risk Management Institute,
Investopedia
Different states have different requirements for minimum coverage for car dealershipsState Business Sites
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While most people are aware that car insurance coverage is required for anyone driving a personal vehicle, the insurance for car dealerships is a little bit different.

Car dealerships are not required to individually insure every vehicle on their lot. However, they are required to maintain certain kinds of overall coverage policies that include the vehicles on the lot.

There is more than one type of car insurance for dealerships, and it can get complicated. An auto dealer’s errors and omissions insurance policy is just one example of car dealership insurance requirements; what you need may differ, especially since there are many kinds of dealerships.

So how do you find out what kind of insurance for wholesale car dealers is out there? Is there used car dealership insurance? What are your options, and do the best insurance companies write auto dealer insurance policies? We know finding the answers to these questions can be frustrating, but not to worry, we’ve done the research for you.

Keep reading to learn more about what insurance car dealers need, how to save money on your car dealership insurance costs, and some questions you should ask of insurance companies before you buy.

To get started, use your ZIP code to get a free quote on car insurance today.

Auto Dealer Insurance Requirements

So just what type of insurance do car dealerships need? What are your options and what do they cover?

Car dealerships need auto dealer insurance. Keep reading to learn more about dealership insurance costs, the different insurance coverage types available to car dealerships, and what kind of cheap business car insurance dealerships need.

What does a commercial auto policy cover?

The minimum amount of liability auto insurance coverage required is what’s needed in order to legally drive, and nearly every state in the country requires all vehicles to have minimum liability car insurance coverage. The purpose of this coverage is to ensure drivers are financially protected in the event of an accident.

However, personal auto coverage does not provide the coverage necessary for businesses. Instead, the first thing car dealership owners must do is purchase a commercial auto insurance policy, rather than personal, for the business. Ultimately the reason for this commercial coverage is the same as it is for personal car insurance coverage: it provides financial protection in the event of an accident, incident, etc.

What does a commercial auto policy cover? While the coverage is similar to personal coverage, there are some differences, primarily based on how vehicles are used. Take a moment to watch this video to learn a bit more about commercial car insurance.

Because vehicles on a dealership’s lot can be driven off the lot prior to purchase (for example, during a test drive), dealerships must have some kind of insurance coverage that protects every vehicle on the lot.

Generally, at a minimum, dealerships should be covered by third-party liability insurance that includes the vehicles on the property. Third party car insurance will typically include property and casualty coverage, similar to the most common liability coverage types for personally owned vehicles.

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What insurance do car dealers need?

Insurance for car dealerships is not considered standard car insurance coverage or personal vehicle coverage. It’s also different from the commercial auto insurance we just discussed, which is typically how businesses insure the vehicles owned by and used in the course of performing work for that business (recall the video you just watched). So what is dealer coverage?

Auto dealer insurance for car dealerships is a bit different than general business insurance coverage (though many dealerships are required to have some version of this as well), because dealerships have specific and unique coverage needs.

Auto dealer insurance is the kind of insurance car dealerships need. Auto dealer insurance is tailored specifically to the needs of dealerships. The auto dealer insurance requirements coverage types that you can include as a part of auto dealership insurance (and in some cases are required to include, which we’ll discuss in greater detail later) are listed below:

  • Commercial General Liability — protects companies from incidents that can occur involving customers or other individuals on the property who do not work for the business. This coverage includes property and casualty coverage, as well as things like libel, slander, and copyright infringement by providing financial coverage for legal, medical, and other costs that result from incidents. The exact amount of coverage depends on your policy. Take a look at this video to learn more.

  • Employment Practices Liability Insurance (EPLI) — protects employers in the event of accusations or occurrences of employment issues like harassment, discrimination, retaliation, wrongful termination, and more. Watch this video to learn more.

  • Errors and Omissions (E&O) Insurance — protects businesses like dealerships that offer advice as a part of performing business (for example, recommending vehicles) by offering coverage in the event that errors or omissions are made by employees when performing a service as a part of normal business operations.
  • Business Income Insurance — protects businesses when natural and man-made disasters occur by offering financial coverage to help cover expenses (particularly for damages resulting from the disasters), payroll, and other costs that occur when income is lost as a result of a disaster. There are different variations of this coverage, so you’ll need to determine the right fit for your business.
  • Workers Compensation Insurance — protects businesses by covering the costs of medical expenses that can result from employees being injured or becoming ill as a result of the job. Take a look at this video to learn more about workers’ compensation for car dealers.

  • Garage Keepers Liability — protects businesses in the event that a customer’s vehicle is damaged while it is under the care of the business (being repaired, for example) by covering the costs of the damage (including as the result of fire, vandalism, collision, or weather). This coverage also often covers vehicle theft, if a customer’s vehicle is stolen while under the care of the business.
  • Garage Liability — protects garage businesses (which we’ll talk about in more detail later) by covering the cost of any property damage or bodily injury that occurs as the result of business operations. Watch this video to learn more.

  • Dealer Plate Insurance — provides protection for vehicles and drivers out on the road test-driving. Dealer place insurance coverage is particularly important because car insurance is typically required in order to drive a vehicle. At the time of a test-drive, the vehicle is owned by the dealership, not the driver. With this coverage, vehicles available for test drivers are marked with unique license plates that indicate the necessary protection is in place for drivers to test unregistered and uninsured (in the traditional sense) vehicles.

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Which businesses are required to maintain this coverage?

Any business that is considered garage-related is required to maintain basic auto dealer insurance coverage. Car garage and dealership insurance can offer similar coverage depending on the needs of your business.

So what are garage-related businesses? Ultimately any business that sells a motor vehicle of any kind, conducts any kind of car repair, detailing, maintenance, and more is considered a garage-related business, and as a result must carry auto dealer insurance.

The below list includes some examples of garage-related businesses that are required to carry some form of auto dealer insurance coverage.

  • Motorcycle dealers
  • Trailer dealers
  • Farm equipment dealers
  • Vehicle detailing shops

The graphic at the beginning of this section includes a more comprehensive, though still incomplete, list.

What type of coverage does a car dealership need?

Similar to the personal minimum liability coverage requirements, specific auto dealership coverage requirements vary from state-to-state. However, there are a couple of insurance coverage types that are usually required.

For example, worker’s compensation coverage is mandatory in nearly every state in the country for all businesses (not just garage-type). Why? Because you need to know what happens if an employee gets hurt while performing work at your dealership. Who is at fault? Who pays for the medical expenses that may result?

Worker’s compensation coverage ensures that medical expenses from work-related injuries are covered, as are any lost wages the employee(s) experience as a result. It also offers you protection in the event the employee(s) decide to sue the business because they were injured on the job.

Each state will also have its own laws regarding car dealership insurance requirements. For example, used car dealer insurance in California will not be the same as dealer plate insurance in New Jersey. To give you a sense of what is typically required, beyond worker’s compensation, and how different states vary in those requirements, we’ve collected auto dealer insurance requirements for a few of the states in the country.

State Car Dealership Insurance Requirements
StateGeneral LiabilityEPLIE&OBusiness IncomeWorkers CompensationGarage Keepers LiabilityGarage Liability
KentuckyXXX
LousianaXX
NebraskaXX
New MexicoXX
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As the data in the table shows, for the states we looked at, worker’s compensation is required, and most require garage liability. General liability is also commonly required. To find out the exact requirements in your state, if it’s not listed in the below table, you should speak with a licensed auto dealership insurance broker.

However, it is important to keep in mind that there are specific things that you should consider purchasing coverage to include, even if the coverage is not actually legally required, like:

  • Vehicles owned by customers that are on your lot for maintenance
  • Vehicles on loan
  • Inventory vehicles (which are vehicles that have not yet been purchased but are listed in your system)
  • Newly acquired vehicles (which are vehicles that are not yet registered in your system but you plan to incorporate into your car lot)
  • Accidents caused by employees while driving a lot vehicle
  • Accidents caused by customers while driving a lot vehicle
  • Accidents caused by employees driving customer vehicles (such as testing for maintenance issues)

Ultimately any additional insurance coverage options (beyond those required by your state) are up to you, based on your needs and the risks you face.

How much does car insurance cost for a dealership?

Car dealership insurance costs vary based on a number of factors, so we can’t tell you how much you might pay. The amount and type of coverage you need will affect your rates. The higher the limit on your policy, the higher the cost of that coverage.

Beyond the amount of coverage you need, some primary factors can have a significant effect on the coverage rates for your dealership. These include, but are not limited to –

  • where your dealership is located
  • the size of the dealership (in terms of square footage, total business value, the number of vehicles for sale, etc.)
  • the number of people employed at the dealership
  • the types of policies you choose to purchase
  • how many insurance policies you choose to purchase

What about used cars? How much does insurance cost for a used car dealership? Used car dealer insurance costs can also vary just as much, if not more than dealerships selling new cars. Get in touch with your local car dealership insurance company to get a more accurate auto dealer insurance quote.

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Can I get a discount on my auto dealer insurance?

You probably know that for personal car insurance, there are numerous car insurance discounts available for personal insurance, which help make the cost of coverage more affordable, some of which we have listed in the below table.

Types of Car Insurance Discounts Available
Vehicle DiscountsDriver/Customer DiscountsPersonal Discounts
Active Disabling DeviceClaim FreeEmergency Deployment
Adaptive Cruise ControlContinuous CoverageFamily Legacy
Adaptive HeadlightsDefensive DriverFamily Plan
Anti-lock BrakesDriver's EducationFederal Employee
Audible AlarmDriving Device/AppFurther Education
Automatic BrakingEarly SigningGood Student
Blind Spot WarningFull PaymentHomeowner
Daytime Running LightsGood CreditLife Insurance
Economy VehicleLoyaltyMarried
Electronic Stability ControlMultiple PoliciesMembership/Group
Farm/Ranch VehicleMultiple VehiclesMilitary
Forward Collision WarningNew Customer/New PlanNew Address
Garaging/StoringOccasional OperatorNew Graduate
Green/Hyrbid VehicleOnline ShopperNon-smoker/Non-drinker
Lane Departure WarningOn-Time PaymentsOccupation
Newer VehiclePaperless/Auto BillingRecent Retirees
Passive RestraintPaperless DocumentsStable Residence
Utility VehicleRoadside AssistanceStudent Away
Vehicle RecoverySafe DriverStudent or Alumni
VIN EtchingSeat Belt UseVolunteer

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So what about for commercial coverage for car dealerships? Do these discounts apply? Unfortunately, commercial coverage for car dealerships does not qualify for the standard personal car insurance discounts. However, there are things you can do that may lower your rates. These include the following:

  • Conduct a background check on employees — Insurance companies like it when you do an extensive background check on your employees. This ensures that you don’t hire individuals with a criminal background or with other issues, which may save you money on your insurance.
  • Provide mandatory training for employees — Many insurance companies provide you with a list of approved training courses for dealership employees regarding safety with customers and while driving. In addition, some will allow you to develop your own program, which may result in a  discount for your company.
  • Stick to a test drive route — By requiring that all test drives occur on a predetermined route, not only do you decrease the risk of accidents due to familiarity, but some insurance companies may consider offering you a discount if you do.
  • Check driving history of customers — As a dealership, you can run driving background checks on potential drivers; by making this standard practice, insurance companies consider you a lower risk and may reduce your insurance costs.
  • Secure your property — Keeping your property safe from theft is very important. The more security features you have, the deeper your discounts may be. Some insurance companies actually require specific security measures in order to insure a car dealership because they are often the target of theft and vandalism.

These actions have the potential to lower your rates because, just like for personal car insurance coverage, insurers adjust rates for commercial insurance based on what is being covered and the perceived risks associated with the business. By taking these steps, you can demonstrate to your insurer that you present a lower risk, which may, in turn, result in lower rates. Contact your auto dealer insurance company for more information on what car dealership insurance discounts might be available in your area.

Most Common Car Insurance Questions

Many of the same questions you would ask of your personal car insurance agent, you should ask your commercial auto dealership insurance agent. You should be able to fill out a used car dealer insurance application online from some companies, but others may require in-person applications.

The most important thing to speak with your insurance agent about is how much and what kind of insurance you need (not just what is required, but what is recommended in order to ensure you have the protection you need for your business).

Other questions to consider asking your insurance agent include:

  • What (if any) discounts do we qualify for?
  • What are your rates?
  • Do you specialize in dealership insurance?
  • How easy is it to change or cancel a policy?

We recommend considering making a list of all your questions before speaking with an insurance agent so you’re prepared to obtain all the information you need to make an informed decision about your auto dealership insurance coverage. 

As a part of your research, you may also consider speaking with other dealerships in your area to find out who their insurers are and what questions they recommend asking of potential insurers.

Once you’ve determined what you need in terms of coverage by doing your research, speaking to licensed insurers, etc., you should shop around. That way, you’ll be able to determine which insurers offer the best deal for the coverage you need.

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FAQs

While we’ve done our best to cover everything you need to know to be able to make an informed decision about purchasing dealer auto insurance coverage, we know you may still have questions. So take a few minutes to read through these frequently asked questions to learn more.

Am I insured when test driving a car?

The answer to this question is not as simple as it might appear. Technically, since the vehicle you are test driving is unregistered and your personal car insurance coverage does not insure the vehicle, the answer is no (though if you’re in an accident, your personal car insurance coverage may come into play; we’ll discuss this a bit more in the next section).

Since car insurance is typically required for any vehicle on the road, how do dealerships manage this? Most dealerships maintain dealer plate insurance coverage (which we discussed earlier), which enables uninsured and unregistered vehicles to be driven on the road for test-drives.

Additionally, they are typically required (or strongly suggested) to purchase a policy that covers the entire inventory, rather than individual vehicles, so the vehicle you test drive is likely covered both by the dealership’s umbrella policy and the dealer plate insurance.

Depending on the policy type, the dealer plate insurance is often the primary coverage when you’re test-driving a vehicle. We’ll spend a few moments discussing what happens in a car accident next.

What happens if a potential customer gets in a car accident when test driving a car?

If a customer gets in a car accident when test driving a vehicle, they may or may not be covered by whatever insurance policy you’ve purchased for your dealership. There are a number of factors that affect whose insurance takes precedence in the event of an accident while test-driving a vehicle.

Ultimately it comes down to state law, the type of coverage your dealership has, and whether or not the dealership insurance or the customer’s insurance is considered the primary at the time of the accident. You’ll need to speak with an insurance agent to learn more about the laws in your state. 

Is there a difference between coverage for a new car dealership and a used car dealership?

The simple answer is no. Both new and used dealerships fall under the same requirements for garage businesses and are required to purchase the same kinds of insurance. Recall that every state has its own laws regarding all businesses operating within the state, and the special requirements that may be levied on garage businesses specifically.

However, if you own a used dealership, you may want to seriously consider including Errors and Omissions Insurance, if you don’t already have it. As we noted above, it is a good idea for all dealerships to include, but especially so for used car dealerships.

Why? Because this can add extra protection since you’re selling used vehicles, which you’re asserting are ready for sale. This coverage, as we discussed previously, adds protection against customer claims of negligence or inadequate work, which will help cover your dealership in the event a customer claims they were sold a used vehicle that was not what they expected.

Where can I buy car dealership insurance?

Car dealership insurance is a commercial policy, and you may need to speak with one of the auto dealership insurance brokers in your area to purchase coverage. There is no

Did this answer the questions you were asking? What do you think about dealership coverage? Comment below!

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