Running an auto dealership means managing a lot of moving parts—literally. You've got millions of dollars in inventory sitting on your lot, customers test driving vehicles every day, mechanics working on cars in your service bays, and employees driving dealer-plated vehicles around town. One major incident could wipe out your profits for the year, or worse, threaten your entire business. That's where the right insurance coverage comes in. This checklist will walk you through the essential coverages you absolutely need, the optional ones worth considering, and when it makes sense to add each type of protection.
Essential Coverages: The Non-Negotiables
These aren't suggestions—they're the foundation of your dealership insurance program. Most states require several of these coverages just to maintain your dealer license, and frankly, operating without them is financial suicide.
Dealers Open Lot (DOL) Coverage
Think of DOL as comprehensive and collision coverage for your entire inventory at once. It protects all those vehicles sitting on your lot from physical damage—fires, theft, hail storms, vandalism, and yes, even collisions during test drives or when your employees are moving cars around. Instead of insuring each vehicle individually, DOL provides blanket coverage for your fleet, making it far more cost-effective. The coverage applies whether vehicles are parked on your lot, being transported from an auction, or out on an accompanied test drive.
Garage Liability Insurance
This is your general liability insurance specifically tailored for automotive businesses. It covers bodily injury and property damage that occur during your normal business operations. A customer slips on your freshly waxed showroom floor? Covered. A test driver rear-ends another vehicle? That's covered too. An employee accidentally backs into a customer's personal vehicle in your parking lot? Yep, covered. Garage liability is typically required by your lender if you're financing your inventory, and it's one of the first things state licensing boards ask about.
Garagekeepers Insurance
Here's where dealerships often get confused. Garagekeepers covers damage to customer-owned vehicles while they're in your care, custody, or control. If you have a service department, this is absolutely required. There are three types: legal liability (covers damage caused by your negligence), direct primary (covers damage regardless of fault), and direct excess (provides additional coverage above the customer's own policy). Most dealerships opt for direct primary coverage because it eliminates disputes about whose fault the damage was. Your mechanic wrecks a customer's car during a test drive after an oil change? Garagekeepers handles it. A hailstorm damages cars in your service lot overnight? That's covered too.
Workers' Compensation
This one's legally mandated in almost every state once you have employees. It covers medical expenses and lost wages if an employee gets injured on the job. A mechanic hurts their back lifting a transmission, a sales associate trips over a curb on the lot, a detailer gets chemical burns—workers' comp handles their medical treatment and pays a portion of their wages while they recover. Without it, you're personally liable for those costs, and a single serious injury could bankrupt your dealership.
Optional But Highly Recommended Coverages
These coverages aren't always required, but they protect you from increasingly common threats that could seriously damage your business. As your dealership grows and the risk landscape evolves, many of these transition from optional to essential.
False Pretense Coverage
This protects you from fraudsters who pose as legitimate buyers. Someone comes in with fake identification and forged financial documents, drives off with a $75,000 truck, and you never see them or the vehicle again. Standard theft coverage won't help because you willingly handed over the keys. False pretense coverage fills this gap. With identity theft becoming more sophisticated every year, this coverage is becoming less optional and more necessary, especially for high-end dealerships.
Cyber Liability Insurance
You're storing credit card numbers, social security numbers, driver's license information, and financial details for every customer who applies for financing. A data breach could expose thousands of customers' personal information, leading to lawsuits, regulatory fines, and mandatory credit monitoring services that you have to pay for. Cyber liability covers the costs of responding to a breach, including legal fees, notification costs, public relations, and settlements. In 2025, with cyberattacks targeting small and medium businesses more than ever, this is rapidly becoming a must-have.
Pollution Liability
If you have a service department, you're handling oil, coolant, brake fluid, transmission fluid, and other hazardous materials every single day. An underground storage tank leaks and contaminates soil and groundwater. A disposal contractor improperly dumps your waste oil. A major spill occurs during a fluid change. Environmental cleanup costs can reach six or seven figures easily, and standard policies exclude pollution. This coverage protects you from environmental liability and cleanup costs.
Employment Practices Liability Insurance (EPLI)
This covers claims of wrongful termination, discrimination, harassment, and retaliation from current or former employees. Employment lawsuits are expensive to defend even when you win, and EPLI covers your legal defense costs plus any settlements or judgments. If you have more than five employees, you should seriously consider this coverage.
When to Add or Upgrade Coverage
Your insurance needs aren't static. Here are the key moments when you should revisit your coverage:
When you add a service department, you immediately need garagekeepers insurance and should add pollution liability. When you start selling higher-end vehicles (luxury cars, exotic imports), increase your DOL limits and add false pretense coverage. When you open additional locations, each location multiplies your liability exposure—make sure your limits scale appropriately. When you reach 10-15 employees, EPLI becomes much more important because you're now a bigger target for employment claims. When you start storing customer data electronically or offering online financing applications, cyber liability moves from optional to essential.
Annual Review: What to Check Every Year
Set a recurring reminder to review your insurance every single year, ideally 60-90 days before your renewal. Commercial auto insurance costs have been rising significantly—up nearly 18% in 2024 according to industry data—so you'll want time to shop around if your rates jump.
Review your DOL limits against your current average inventory value. If you've been moving more inventory or stocking more expensive vehicles, your limits might be too low. Verify that all your coverage limits still match your exposure—garage liability limits that made sense five years ago might be inadequate now. Check if you've added any new services or revenue streams that need coverage. Make sure your workers' comp classification codes are correct, because misclassification can lead to premium audits and surprise bills. Confirm that all locations, vehicles, and drivers are properly listed on your policies. Ask your agent about any new coverage options that have become available or any exclusions that have been added to standard policies.
Getting Started with the Right Coverage
The biggest mistake new dealership owners make is treating insurance as a commodity and just buying the cheapest policy they can find. Auto dealership insurance is specialized—you need an agent who understands the unique risks of your business and can package the right coverages together. Look for an agent or broker who specializes in garage insurance and can explain the differences between legal liability and direct primary garagekeepers coverage without reading from a script.
Start with the essential four: DOL, garage liability, garagekeepers (if applicable), and workers' comp. Get quotes from at least three insurers, because pricing can vary dramatically for the same coverage. Then add the optional coverages based on your specific operation. A small used car lot with no service department has very different needs than a franchise new car dealership with a full service center. The key is building a program that matches your actual risks, not just checking boxes to meet minimum requirements. Your insurance is protecting everything you've built—make sure it's done right.
