Dealership Auto Insurance: Understanding The Coverage And Costs

Car dealerships require specialised insurance policies to protect their business from unexpected property damage and the high costs associated with running a dealership. Dealerships are not required to insure each car on their lot but must have overall coverage policies that encompass their vehicles as part of their commercial property. This includes dealer insurance, which covers test drives, employees driving dealership vehicles, and potential calamities on the dealership premises. Other types of insurance dealerships may need include commercial property insurance, dealer's open lot insurance, garage keeper's insurance, garage liability insurance, and business interruption insurance.

Dealer's Open Lot Insurance

Dealers Open Lot (DOL) insurance is a type of coverage that car dealerships often purchase to protect their inventory of vehicles. It is a specialised type of business insurance that covers physical damage to a dealership's vehicles, whether they are on the lot, being repaired, or out for a test drive. DOL insurance also covers non-collision damages such as fire, hail, vandalism, theft, and weather events like flooding and hailstorms.

DOL insurance is not limited to private passenger vehicles but can also cover other types of vehicles, such as trailers, motorcycles, and heavy equipment, if the carrier agrees. This type of insurance is essential for used auto dealers as it protects them from financial losses in the event of damage or theft of their vehicles.

There are four basic levels of protection for open lot coverage: unprotected lots, nonstandard protection, standard protection, and building protection. The cost of DOL insurance depends on the scale of damage risk, the total value of the inventory, and the level of protection required. The higher the level of protection, the lower the premiums and deductibles. Geography and population density also play a role in determining the cost, with higher rates for areas prone to natural disasters or with higher population densities.

To determine the appropriate level of coverage, dealerships should consider the average number of units on the lot and the average value per unit. The lot must be insured for its full value to avoid coinsurance penalties, which occur when the dealer's physical damage limit is less than 100% of the inventory's value. In such cases, the insurance carrier will only pay a percentage of the damages equal to the percentage of value covered by the policy.

DOL insurance is an important aspect of a dealership's overall insurance coverage, which may also include general liability insurance, commercial property insurance, and garage liability insurance, among others.

Garage Keeper's Insurance

Garage Keepers Insurance is a type of insurance that covers customers' vehicles while they are in the care of a business. This type of insurance is designed for businesses that service, store, or repair vehicles, such as dealerships, service stations, auto repair shops, and car washes. It offers financial protection in the event that a customer's vehicle is damaged, stolen, or destroyed while in the business's custody.

Garage Keepers Insurance typically covers four main types of damage: fire, theft, vandalism, and collision. It is important for businesses that regularly take custody of customer vehicles to have this type of insurance to mitigate the significant risk involved.

There are three primary coverage options within Garage Keepers Insurance:

• Legal liability coverage: This is the most common type of Garage Keepers Insurance. It covers losses when an employee is legally liable for damage to a customer's vehicle due to negligence or mistake.
• Direct primary coverage: This type of coverage protects the customer's vehicle regardless of who is at fault. It provides coverage for any vehicle kept in the shop, giving customers peace of mind.
• Direct excess coverage: A cheaper alternative, direct excess coverage functions as secondary coverage, paying for losses that exceed the customer's personal auto insurance coverage.

Garage Keepers Insurance is different from Garage Liability Insurance, which covers the business itself from third-party damages that occur during the course of business operations. Garage Liability Insurance covers third-party injuries and property damage, while Garage Keepers Insurance specifically protects the customer's vehicle from unexpected damages.

By having Garage Keepers Insurance, businesses can reduce their risk exposures and protect themselves financially in case of any incidents involving customer vehicles.

Commercial Property Insurance

One of the key benefits of commercial property insurance is its ability to provide coverage for a range of unforeseen events. For example, it can protect dealerships from the financial impact of vandalism, theft, or natural disasters, such as hailstorms or floods. This type of insurance can also provide coverage for inventory damage, which is crucial for car dealerships as they often display vehicles outdoors, exposing them to various risks.

Additionally, commercial property insurance can help dealerships manage their legal costs. For instance, it can cover legal fees if a customer gets into an accident during a test drive or slips and falls on the showroom floor. This aspect of commercial property insurance is particularly important as it can help dealerships avoid costly lawsuits and protect their reputation.

Overall, commercial property insurance plays a vital role in safeguarding car dealerships from financial losses due to property damage, theft, and legal claims. By having this type of insurance in place, dealerships can focus on serving their customers and running their business with greater peace of mind.

Business Interruption Insurance

Additionally, business interruption insurance can provide coverage for expenses such as payroll, rent, and other operational costs that continue even when the business is not generating income. This type of insurance ensures that the dealership can stay afloat financially during unexpected disruptions and helps to protect the business from the financial consequences of unforeseen events.

When purchasing business interruption insurance, car dealerships should consider factors such as the location of the dealership, the value of their inventory, and the specific risks they face. By tailoring the coverage to their unique needs, dealerships can ensure they have the necessary financial protection in the event of a business interruption.

Worker's Compensation Insurance

Workers' compensation insurance is a crucial aspect of risk management for car dealerships with employees. It is required in almost every state and offers financial protection for both employees and employers in the event of work-related injuries or illnesses. This type of insurance covers medical costs, lost wages, and legal expenses associated with employee injuries. For example, if an employee slips on a slick service floor or is involved in a vehicle collision, workers' compensation insurance can help cover immediate and ongoing medical expenses, as well as partial lost wages during their recovery.

The cost of workers' compensation insurance for dealerships is typically based on the business's payroll, with rates determined by factors such as the type of work, claims history, and payroll amount. Dealerships can also benefit from risk management strategies, such as employee safety training, proper equipment usage, and regular maintenance, to reduce the likelihood of injuries and keep insurance premiums low.

In certain states, dealerships must purchase workers' compensation insurance through a monopolistic state fund, which may not include employer's liability insurance. However, this additional coverage can be obtained separately from a private insurance company.

Workers' compensation insurance is just one aspect of the comprehensive insurance coverage that dealerships need to protect their business, employees, and inventory. Dealerships should also consider general liability insurance, commercial auto insurance, cyber liability insurance, and commercial umbrella insurance, among other types of coverage, to ensure they are adequately protected against various risks.

By understanding the unique challenges and risks faced by auto dealerships, insurance providers can offer tailored solutions to meet their specific needs and help them focus on delivering superior customer service.

Frequently asked questions