What Type of Insurance Does My Car Dealership Need?


More than three-quarters of American businesses are underinsured. That leaves them exposed to liabilities and risks should something happen to their business.

Car dealerships carry an extraordinary amount of risk. Inventory is centrally located, they’re targeted by thieves, and anything can happen on the premises.

If you’re thinking about or already running a car dealership, it’s essential that you fully understand your coverage options.

Not only are there legal liabilities, but there are other costs that could negatively impact your business. Knowing the types of coverage ensures you have the best policy for your dealerships.

Read on to learn what insurance coverage options exist and which ones your vehicle dealership should have.

1. Commercial Liability Insurance

The first question that a car dealer usually asks is, “Do auto dealers need insurance?”

The answer is always a resounding yes! How much is your dealership worth? If a storm comes and wipes out your inventory, will your business survive? If someone trips on your property and sues you, will you be able to cover legal expenses?

If an employee clicks on an email and unleashes a cyberattack, will your business get past those challenges?

The best policy for your car dealership covers you in those and other instances.

Commercial general liability is usually the starting point for most business insurance policies. This covers injuries and damages that occurred onsite or due to your dealership’s operations.

This policy covers slips and falls to third parties (not you or employees) on your premises. It also covers lawsuits from advertising.

2. Garage Keeper’s Insurance

Most car dealerships have a service area. This is a very profitable part of the business because you ensure customers return to your dealership throughout the life of the vehicle.

You’ll have customers’ vehicles onsite for a period of time, which means you’re liable for any damages sustained when the car is in your possession.

Vandalism, theft, fire, or extreme weather could occur and damage the vehicles. This insurance policy covers your liability in those instances.

3. Dealer Plate Insurance

People want to test drive a car before they make a purchase. A question will come up if an accident occurs during the test drive.

Who’s liable for damages and injuries?

The vehicle isn’t legally registered and the driver’s insurance policy isn’t going to cover the accident.

That’s what dealer’s plate insurance is for. Car dealerships get dealer’s plates for unregistered cars. That lets them legally take cars on public roads and highways.

Dealer’s plate insurance insures these vehicles in case something happens during a test drive.

4. Garage Liability Insurance

Garage liability is a bit different than garage keeper’s insurance. It’s another way to protect your business on top of a general liability policy.

It protects your business if someone is injured in the operations of your business.

Garage liability and commercial general liability have a number of limits and levels of protection. Read these policies carefully to ensure your dealership is fully insured.

5. Errors and Omissions Insurance

Car buyers turn to your and your employees for expert advice about cars. You’re also providing a service in addition to tangible products.

If you or one of your employees misspeaks or overlooks a crucial part of the car buying process, you’re liable for damages.

If those errors turn into harm or financial damages suffered by a customer, get ready to pay the costs.

The only way to get out of those payments is to have errors and omissions insurance.

6. Workers’ Compensation Insurance

Workers compensation insurance is a requirement in most states when you hire your first employee. This covers injuries sustained while performing work duties.

Workers’ compensation is overseen by state labor boards but is obtained through private insurance companies.

In exchange for insurance coverage, employees agree not to file a lawsuit against your car dealership.

7. Cyber Insurance

Car dealerships store sensitive and personal customer data. You have contact data, driver’s license information, payment data, vehicle history, and more.

Your business also relies on sales data to make strategic decisions.

A cyberattack could wipe all of that data out. Your business is vulnerable just by being connected to the internet.

Cyberattacks impact your brand, too. You worked hard to build trust with your customers. A cyberattack disrupts the customer relationship.

Cyber insurance helps your business recover. It covers lawsuit costs and some policies cover reputation recovery costs.

8. Business Income Insurance

The EPA notes that climate change will cause more frequent weather events. This includes storms, tornados, wildfires, and floods.

Any one of these events could disrupt your business for weeks. Most businesses aren’t prepared to survive that long without income.

What you can do is get business income insurance. This helps you cover your expenses while your business recovers from the event.

Read the exclusions of this policy because it doesn’t cover every natural disaster.

9. Employment Liability Practices Insurance

Employers occasionally get accused of harassment, wrongful termination, discrimination, and other wrongful employment practices.

These situations often wind up in court.

Employment liability practices insurance (EPLI) covers your legal costs to fight these accusations.

Understanding Insurance Coverage Options for Car Dealerships

The insurance industry can confuse the smartest people. You might think that you have a comprehensive insurance policy, but there’s a good chance you have coverage gaps.

The coverage options listed here only scratch the surface of insurance policies. Check the laws and requirements in your state to see what your car dealership needs. Then work with an insurance company that specializes in car dealerships to ensure you have the best coverage.

You’ll limit your liabilities and make sure your business gets through the toughest challenges unscathed.

For more business and tech advice, check out the other articles on the blog today.

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About the Author: Veronica Baxter

Veronica Baxter is a writer, blogger, and legal assistant operating out of the greater Philadelphia area.