Essential Insurance Policies for Car Dealerships

Operating a car dealership involves major investments in inventory, facilities, and equipment. With so much on the line, having the right insurance coverage is critical to protect the business from the many risks it faces. There are several key types of insurance policies that car dealerships require for full protection.

Why Car Dealerships Need Robust Insurance

Car dealerships have extensive assets on hand between their facility, inventory, tools and equipment. Some of the major risks facing dealerships include:

• Vandalism or theft of vehicles on the lot
• Test drives resulting in collision or loss
• Hail, storms, or other weather damage to inventory
• Liability for accidents on premises
• Employee injuries
• Computer systems hacking or data theft

Without proper insurance, these threats pose substantial financial risks to the car dealership. A major uncovered loss could put a dealership out of business. That’s why securing the right insurance for complete protection is an essential part of owning and operating a car dealership.

Key Auto Dealership Insurance Policies

There are several specialized insurance policies that car dealers should carry to fully cover their business.

1. Commercial Property Insurance

This policy covers the physical building, inventory, equipment, machinery, and any improvements from damage. It protects against standard risks like fire, smoke, wind, hail, vandalism, and theft. Business interruption coverage can also be added to cover income lost while recovering from a covered loss.

2. Garage Liability Insurance

This is liability insurance to cover bodily injury or property damage to customers or others caused by the dealership’s operations or employees. It protects if a customer gets injured during a test drive or while on the premises. Minimum policy limits are often $1 million.

3. Garagekeepers Liability Insurance

Also known as garagekeepers coverage, this insures vehicles left in the dealership’s care against damage from covered risks like collisions, theft, vandalism, or weather while on the premises. This covers cars left for service/repair and inventory vehicles.

4. Open Lot Coverage

This protects vehicles in the dealership’s open lot waiting to be sold. Covers loss from vandalism, theft, storms, fires, and other risks that could damage inventory vehicles on the lot. Usually has limits per vehicle and total limit for the lot.

5. Dealers Errors & Omissions Insurance

Also called E&O insurance, this covers losses arising from mistakes, negligence, or failure to perform by the dealership or employees. If faulty auto repairs lead to an accident or incorrect paperwork results in losses, E&O insurance protects the dealership from liability.

6. Test Drive Insurance

Provides coverage when dealership employees or customers test drive a dealership-owned vehicle on public roads and an accident occurs. Collision damage to the vehicle and liability for injuries or third-party property damage will be covered under this policy.

7. Workers Compensation

Required insurance that provides wage replacement and medical benefits to employees injured while working. Protects the dealership from any work injury-related lawsuits.

8. Umbrella Liability Insurance

Extra liability limit above other insurance policies like garage liability and auto policies. Added layer of protection in case a major loss exceeds primary policy limits. Typically $1 million to $5 million in additional coverage.

9. Employment Practices Liability

Covers defense costs and damages awarded in employment-related lawsuits like wrongful termination, discrimination, or harassment. Lawsuits by employees can be costly, so EPLI coverage is critical.

10. Cyber Liability Insurance

With today’s digital operations, car dealerships need cyber insurance to cover costs related to a data breach, computer virus, or ransomware attack. Can include IT forensic investigations, customer notification, credit monitoring, and PR services.

Work with an Insurance Broker

With so many important insurance policies required, partnering with an experienced insurance broker is highly recommended when insuring a car dealership. A good broker will explain coverages, identify risks, and place policies with insurers suited to auto dealers. This ensures your dealership gets customized insurance specific to your operations and assets. Contact a commercial insurance broker today to discuss protecting your car dealership business.