Get a Used Car Dealer Insurance Quote in California
Selling used vehicles in California can be a highly rewarding and lucrative business enterprise. Yet, it comes with certain risks and potential losses that you can avoid by getting a California used car dealer insurance policy. Here’s what you need to know about it!
What is California Used Car Dealer Insurance?
California auto dealer insurance is a policy that can cover damages or losses that occur to the vehicles you are selling, to your facility and property, to your employees or customers and more. If you do not have an insurance policy, you will have to cover the expenses associated with such incidents yourself. With insurance, the insurance company will cover different expenses, depending on the types of coverages included in your policy.
How much does the car dealer insurance cost in California?
There is no fixed cost for getting your California auto dealer insurance. Instead, the cost is determined by a number of different factors, including who your provider is. The factors and risks that are considered by your insurance carrier include:
- The types of coverages that you wish to include in your policy, and the amount of coverage you are requesting
- The size of your company, the number of its employees, and their roles in the company
- The location of your business
- The value of your inventory
- The maximum pick-up/delivery distance (more or less than 200 miles)
- Your experience in the garage automotive industry and your experience as a business owner
- Your prior insurance history as well as your claims history
All of these taken together make up the cost of your California used car dealer insurance policy.
How to get insurance for your auto dealership in California
To get California car dealer insurance, you will need to fill out and submit our online insurance application form. We will then contact our providers to seek out the best possible rate for you. We will get back to you shortly with your free quote. Want to find out how much your premium will be? Request a quote and let’s get started!
Car dealer insurance requirements in California
The state of California does not require used car dealers to obtain insurance. However, two important caveats apply here! Vehicles that are driven on public roads must be insured. Moreover, any personal auto insurance coverage does not apply to vehicles that are purchased by a car dealer business. For these reasons, it is a good idea to get insurance even though the state does not require it. Dealers frequently also get insurance in order to meet the requirements of landlords, auctions, and lenders, or to minimize the risk of getting pulled over and having uncovered claims. To become a car dealer, you must apply at the California Department of Motor Vehicles and complete the licensing requirements, such as getting a California auto dealer bond.
Types of insurance and coverage
In total, there are over 15 types of coverages that can be included in your California car dealer insurance policy.
The most common types of coverage include:
- Inventory coverage – includes the purchase price and the reconditioning on the cars that you buy from other dealers. It does not include the profit you expect to make from selling a vehicle.
- Garage liability coverage – applies to property damages or bodily injuries that are sustained by a third party as a result of the operations of your auto garage operation or while they are using your insured vehicles.
- Garagekeepers coverage – designed to protect against claims arising from physical damage to vehicles owned by others that are left in your care, custody, or control. This includes vehicles that are being serviced, repaired, stored, and test-driven.
- Medical payments coverage – can cover any medical expenses sustained by you and/or your passengers if involved in an accident in a covered auto. It can also be used for small claims on your premises such as a customer’s trip or fall.
- Scheduled vehicle coverage – supplies liability and physical damage coverage to vehicles specifically listed on your policy. This coverage should be considered when a vehicle is owned by you or your spouse, rather than in the business name. In many cases, it makes good business sense to dissolve your personal lines auto insurance policy and obtain insurance on the personal exposures under your car dealer policy. This may result in having more coverage for less money.
- Contents coverage – provides replacement costs for your personal property, including leased business personal property for which you are contractually responsible, in the event of a fire, burglary, vandalism, and collapse. Examples of personal property include computers, tools, furniture, fixtures, machinery, and other equipment.
On top of the above, there are several other coverages that are taken up less frequently but are still worth considering. These include:
- Damage to rented premises coverage (DTRP) – also known as Fire Legal Liability, this coverage provides liability for property damage caused by a fire to premises leased or rented to you and arising out of your own negligence.
- Broad form drive other car coverage – for businesses not individually owned, this coverage may be used to extend the garage policy to provide insurance for partners or corporate officers who do not carry their personal auto policy when borrowing or renting cars in their name. The individuals named in the endorsement become insureds while using autos they do not own.
- Broad form products – provides coverage for property damage to its product(s) even if the resulting damage was caused by a defect existing in the product at the time of customer purchase.
- False pretense coverage – coverage provided if the insured is tricked or schemed into voluntarily parting with a covered auto or the insured acquires an auto from a seller who did not have legal title
FAQs about Used Car Dealer Insurance in California
The California DMV insurance does not require proof of insurance to get or keep your used car dealer license. Even though it is not mandatory, getting insurance can save you quite a lot of trouble in your day-to-day operations.
All states have a specific division created to deal with overseeing the licensed vehicle dealers doing business legally. In states like Arizona, this division is called the Motor Vehicle Department (MVD) and in states like California, dealers will recognize the name Department of Motor Vehicles (DMV). The majority of the DMV’s require there to be certain protections in place to safeguard the general public (or the retail transactions).
That said, not only will a used car dealer bond offer some type of recourse to a buyer who may have become the victim of fraud, but it will also provide protection to other dealers. The transactions done between 2 dealers are called wholesale transactions. The state of California will allow a private-party to sell 5 vehicles per year before they are required to obtain a dealer license (wholesale or retail).
This is the #1 most common question we receive even though it’s actually a DMV pre-licensing test question. The answer is a little complicated but hopefully, this makes sense. There is a carve-out in the law that allows a $10,000 bond for motorcycle-only retail dealers. The only additional exception is made for wholesale-only dealers that are selling less than 25 vehicles per year. All other wholesale, auto broker, or retail car dealers need a $50,000 bond.
Your Auto Dealer Bond should be active by the time you plan to see your DMV inspector to get licensed. For instance, if you place to the see the inspector on the 3rd Thursday of the month, your bond should be active on that Monday or Tuesday latest. Most dealers like to get the most for their money so they don’t want to pay for any dead time but this is strategy could save you as much as a week of time as you will read about in the next question.
The California DMV has a very specific carve-out in the law for wholesale-only auto dealers. The exception is meant to offer low-volume, wholesale-only dealers the opportunity to get lower limit auto dealer bonds. As a result, wholesale dealers save themselves some money. This is actually a question on the DMV Pre-Licensing test so most dealers already know this rule but it’s worth mentioning given how many times I hear this question. Wholesale Dealers that sell less than 25 cars/trucks per year can get away with the $10K surety bond. The only other carve out exists for Motorcycle-only dealers, regardless of retail or wholesale. Motorcycle-only dealers also have no sales caps in order to still qualify for the $10K bond.
The protection that a surety bond provides is for your customers and partners, not for your business. It’s meant to safeguard the interests of the general public, other car dealers, and the lenders that provide financing for inventory.
No. The DMV is tracking the number of sales transactions to determine your car dealer bond limit. The number of cars you purchase is not factored in. That said, if you are buying too many cars and not selling them, eventually the California Department of Tax and Fee Administration (CDTFA) may start poking around. The reason is that vehicles you purchase as a wholesale dealer typically generate a taxable profit. If that vehicle was never sold, the CDTFA would never get to collect a tax on the profit you made on the auto sale.
An auto broker endorsement used to be the way to do that in California. However, the DMV is trying to eliminate this specific license type. That said, the auto broker business model is still alive and well! They still need to obtain a $50K auto dealer bond, though.
The California DMV has a very specific carve-out in the law for wholesale-only auto dealers. The exception is meant to offer low-volume wholesale dealers the opportunity to get lower-limit auto dealer bonds. Wholesale dealers who sell less than 25 cars or trucks per year can get away with the $10K surety bond. The only other carve-out exists for motorcycle-only dealers, regardless of retail or wholesale. Motorcycle-only dealers also have no sales caps to still qualify for the $10K bond.
Since the only carve-out in the California DMV law is for motorcycle-only dealers, you will need a $50K auto dealer bond if you are getting a license to sell vehicles directly to the public. Retail truck, trailer, RV, and boat dealers all need a $50K surety bond.
