By Ed Sneineh
Chicago Car Dealers Insurance, Issues And Prices
Do all used car dealers need insurance?
Definitely. All new and used car dealerships will need to have some sort of garage insurance policy 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 granted to them by the state. Used car dealers insurance in Chicago is the law.
What form of coverage do you need?
Necessary Coverages:
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Car dealers need a garage liability policy covering the business as well as the workers, sales persons of your business (who must also be listed on the policy) in the events your business conduct as a car dealer result in damages to the properties of others or harm to their body. Neither you, nor officers of your business, or employees are covered under any bodily injury or property damage coverage provided by the garage liability. The minimal level 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 stand for the max totals that your insurance company will spend 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 reported employees cause any at fault accident in relation with your dealership actions. Certain companies offer this minimum as a Combined Single Limit (CSL) of $350,000 bodily harm and property damage per accident, which is normally more expensive than the split limit. Used car dealers that operate larger operations should be worried about liability limits. The author suggests a million dollar as a combined single limit.
Price of garage liability relies on many issues including limits of garage liability insurance, geographical location, number of dealer plates (some companies verify it with the state); and number, ages, MVRs of each operator 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. It is less expensive in the suburban areas of Chicago. Nevertheless, extra discounts may apply such as experience with no loss. Also there might be more surcharges if there are younger drivers or if you have employees with not good driving records.
Sometimes the City of Chicago may also ask you to show a evidence of driveway insurance. Typically 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 charges, to satisfy the requirements of the City of Chicago. Nevertheless in other conditions, you might need to get a separate 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 missed by car dealerships. You need workers compensation for your dealership in order to meet your legal and moral obligations towards your company and staff. Officers and owners of the organization have the option to include or exclude themselves from workers compensation coverage. In case they want to be excluded (perhaps they get wage and do not do any real work at the dealership) they have to sign some exclusion form. Keep in mind that no employees/contractor/ officer of the dealership is protected for bodily injury in connection with any at fault auto accident related to the measures of the dealers. Coverage for employees for these situations are delivered under a workers compensation policy.
Workers compensation premiums are based on how much salary you will pay in the next 12 months. It has nothing to do with the past. People covered include all the staff with W2s (must include by law), contractors with 1099 (can be excluded only if you can show that they have workers comp coverage on their own) and directors/ owners of the business except if specially excluded. For independent contractors (i.e. drivers who transport autos from car auctions to dealership) they have be added unless they show you that they have workers comp coverage somewhere else. It is tough to estimate fees of workers comp because it is based on future payroll. For that reason, your insurance company gives you an estimate in the beginning, then it will audit your wage towards the end of the policy term, after which date they will tell the final premium. For that reason, you might be charged extra, or simply get a returned premium, at the end of the policy period for the previous policy!
Bonds: A used car surety bond is normally required for new used car dealer ventures which are less than three years. The value of the bond is $20,000. The bond is some kind of guarantee by the bonding company that the used car dealer will adhere to the guidelines set by the State of Illinois. A major issue related to bond is its price. The price of the bond could vary from $200 to $2,000 depending on the credit of the Principal on the bond (owner / partners of the dealership). The vast 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 require a Chicago used car dealer for a bond to guarantee payments of sales tax! This could be brought on by situations related to the experience of the tax authorities with particular places, old owners of business, or new owners/ officer.
Non Mandatory Coverages
There are some optional coverages that used car dealership may be interested in, based on their wants.
Dealer Open Lot refers to the collision and comprehensive coverages on dealer owned autos. There is normally 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 vehicle of $25,000. Dealers must analyze 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 cars. The coinsurance penalty ratio is the ratio which is used to figure out if a particular dealer is properly insured or not. Coinsurance percentages range from 80% to 100%, and they are normally stipulated on the policy declaration page. In the previous scenario if the customer has 80% coinsurance, then the dealer must keep at least $320,000 to be rightly insured. If the dealer maintains lower than that amount, then the company will provide only partial payments on the claims made, because the client 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 rate 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!
Your business also needs Garage Keeper Liability, if you work on autos that you do not own, such as customers who bring their cars for minor repair work. Vehicles 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 needed 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 elective 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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