Used Car Insurance Dealerships, Coverage Definitions and Prices

Do all used Auto dealers need insurance?

Affirmative! no doubt. All new and used car dealerships need to have some type of garage insurance coverage that must be filed with the state by the insurance carrier. A cancellation of their insurance policy will end up in a suspension of their business license offered to them by the state. Used car dealers insurance in Chicago is the law.

What form of coverage do you need?

Necessary Coverages:

Car dealers need a garage liability policy covering the business as well as the workers, salespeople of your business (who must also be disclosed on the policy) in the events your business conduct as a car dealer cause damages to the properties of others or harm to their body. Neither you, nor management of your dealership, or workers are covered under any bodily injury or property damage coverage provided by the garage liability. The minimum amount of garage liability insurance in Illinois is a split limit of $100,000/300,000/50,000, also expressed as [100/300/50]. These numbers give indication of the maximum levels that your insurance company will pay on your behalf for bodily injury per person, bodily injury per accident, property damage per accident; correspondingly; in the event that you, your business officials or listed employees cause any at fault accident in connection with your dealership actions. Some companies offer this minimum as a Combined Single Limit (CSL) of $350,000 bodily injury and property damage per accident, which is usually more costly than the split limit. Used car dealers that manage larger procedures should be concerned about liability limits. The author advises a million dollar as a combined single limit.

Price of garage liability relies upon on many issues including limits of garage liability insurance, geographical location, number of dealer plates (some companies check it with the state); and number, ages, MVRs of each driver listed on the policy. A used car dealer insurance policy with minimum plates and most desirable conditions to the issuing company will be approximately $3,000 per year in the City of Chicago. The policy is less expensive in the suburban areas of Chicago. However, extra discounts may apply such as experience with no loss. Also there might be more extra charges if there are youthful drivers or if you have staff with poor driving records.

Sometimes the City of Chicago may also ask you to present a evidence of driveway insurance. Normally it is set at $1,000,000 by the City. Certain garage policies issued at lower liability limits in the City of Chicago may be endorsed, for a minimal additional fees, to fulfill the requirements of the City of Chicago. However in other conditions, you might need to get an additional policy for that if your policy does not provide that protection.

Illinois Workers Compensation is a very important coverage, one that is also very well forgotten by car dealerships. You need workers compensation for your dealership in order to meet your legal and moral commitments towards your company and workers. Management and owners of the business have the option to include or exclude themselves from coverage. In case they want to be excepted (maybe they get wage and do not do any real work at the dealership) they have to sign some exclusion document. Keep in mind that no employees/contractor/ director of the dealership is covered for bodily injury with regard to any at fault auto accident related to the actions of the dealers. Coverage for employees for these situations are given under a workers compensation policy.

Workers compensation rates are based on how much payroll you will pay in the next 12 months. It has nothing to do with the past. Persons covered include all the workers with W2s (must include by law), independent contractors with 1099 (can be excluded only if you can prove that they have workers comp coverage on their own) and officers/ owners of the business except if specially excepted. For independent contractors (i.e. drivers who transport vehicles from car auctions to dealership) they must be added unless they prove to you that they have workers comp coverage with another company. It is no easy task to project costs of workers comp because it relies on future salary. For that reason, your insurance company provides you a projection in the beginning, then it will audit your payroll towards the expiration of the policy term, after which date they will notify the final rate. Because of that, you might be charged extra, or simply get a returned premium, at the end of the policy period for the older policy!

Bonds: A used car surety bond is usually needed for new used car dealer ventures which are less than three years. The value of the bond is $20,000. The bond is some sort of guarantee by the bonding company that the used car dealer will adhere to the regulations set by the State of Illinois. A main issue related to bond is its price. The price of the bond could vary from $200 to $2,000 based on the credit of the Principal on the bond (owner / partners of the dealership). The majority companies will not issue bonds for people with severe credit troubles. Keep in mind that any government organization may ask for a bond. For example, Cook County Treasurer may demand a Chicago used car dealer for a bond to ensure payments of sales tax! This could be induced by scenarios related to the experience of the tax authorities with certain sites, old owners of business, or new owners/ officer.

Main Optional Coverages

There are some optional coverages that used car dealership may be interested in, based on their wants.

Dealer Open Lot is related to the collision and comprehensive coverages on dealer owned vehicles. There is usually a limit set on coverage per auto. So if a dealer acquire a dealer open lot coverage with $150,000 per site, that policy may limit coverage per auto of $25,000. Dealers must Look at their policies.

One of the source of trouble is related to the Coinsurance Penalty Clause. To reduce premiums, a used car dealer may get dealer open lot coverage of $100,000 on his/her lot which has $400,000 of used vehicles. The coinsurance penalty percentage is the ratio which is used to figure out if a particular dealer is correctly insured or not. Coinsurance percentages range from 80% to 100%, and they are normally stipulated on the policy declaration page. In the previous situation if the insured person has 80% coinsurance, then the dealer must maintain at least $320,000 to be rightly insured. If the dealer retains less than that amount, then the company will make only partial payments on the claims made, because the customer was paying partial payments in relation to what he/she was supposed to should have paid. The amount the company will pay is based on the percentage of what the customer currently has [100,000] divided by the minimum that was supposed to be carried [320,000]. In other words, the insurance company will pay about 31.25% [100,000/320,000] of any potential claim, after the deductible!

The dealership also needs Garage Keeper Liability, if you work on autos that you do not own, such as customers who bring their cars for small repair work. Autos that you do not own require physical damage coverage (comprehensive and collision) with certain deductible ($500 to $1,000). Garage Keeper Liability insurance is not necessary if the dealer does not perform any maintenance or repair work on vehicles they do not own. Garage keeper liability is not an expensive coverage and is based only on the amount of coverage you need. Normally the minimum amount is $25,000 per car. The difference between $25,000 and $50,000 in coverage is very minimal. You can tell how much you need by knowing the average value of all automobiles that exist on your lot which you do not own.

There are other optional coverages that used car dealers may need. These include coverage on Building, Business Property, Security, Business Income, Crime (Robbery etc.) and some forms of Professional Liability.

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