Here's what catches most new delivery business owners off guard: the moment you start getting paid to deliver goods, your personal car insurance stops covering you. That pizza you're driving across town? Your laptop delivery to a client? Your regular auto policy explicitly excludes commercial activity. If you get in an accident while making that delivery, you could be facing tens of thousands in damages with zero coverage. Starting a delivery service means entering a completely different insurance world—and getting it right from day one can mean the difference between building a sustainable business and losing everything to a single claim.
Day One Coverage: What You Need Before Your First Delivery
The absolute minimum coverage you need before making your first paid delivery is commercial auto insurance. Every state except New Hampshire requires auto liability insurance, and when you're using your vehicle for business purposes, that means commercial coverage. Your personal policy has a business-use exclusion—it's buried in the fine print, but it's there. The moment you accept payment for delivery services, you've crossed into commercial territory.
If you're running delivery part-time or just getting started with a single vehicle, you have a more affordable option: a delivery endorsement added to your personal auto policy. This typically costs $100-300 per year and fills the coverage gap during delivery activities. Companies like Progressive offer full coverage (liability plus comprehensive and collision) for delivery drivers at around $1,532 annually. If you're operating full-time or own multiple vehicles, expect to pay $1,200-$2,500 per year for a true commercial auto policy.
The second essential coverage is general liability insurance. While not legally required in most states, you'll need it to sign a commercial lease, secure a business loan, or land contracts with corporate clients. General liability protects you if you damage a customer's property during delivery—think knocking over an expensive vase while rushing to drop off a package, or causing water damage when you track rain into a client's office. The median cost runs about $60 monthly, with most small delivery businesses choosing $1 million per occurrence and $2 million aggregate limits. That's the sweet spot that satisfies most landlords and commercial contracts.
When to Add Coverage: Growth Triggers You Can't Ignore
The moment you hire your first employee—not contractor, but actual employee—you trigger workers' compensation requirements in nearly every state. Most states require workers' comp for employers with one to five employees, and this includes both full-time and part-time workers. Texas is the only state that doesn't require it, but even there, most businesses buy it anyway because the liability risk is too high. If you're operating in North Dakota, Ohio, Washington, or Wyoming, you'll need to purchase coverage through state-administered monopolistic funds since private workers' comp insurance isn't available there.
Here's the critical distinction that confuses delivery business owners: if you're hiring drivers as independent contractors—like DoorDash, Uber Eats, or GrubHub do—they're not eligible for workers' compensation. But if you're employing pizza delivery drivers who wear your uniform, follow set schedules, and perform other duties in your establishment, they're employees and you need coverage. Getting this classification wrong can trigger massive fines and back-payment penalties if your state labor board investigates.
Once you're operating three or more vehicles, or your annual revenue crosses $500,000, it's time to consider umbrella coverage. Standard commercial auto policies typically cap at $1 million in liability, and general liability maxes out at $2 million aggregate. A serious multi-vehicle accident or catastrophic injury claim can blast through those limits in hours. An umbrella policy provides an additional $1-2 million in coverage across all your policies for a fraction of the cost of increasing each individual policy's limits.
Common Mistakes That Cost Delivery Startups Everything
The biggest mistake? Assuming platform coverage is enough. If you're partnering with delivery apps, you need to understand their insurance is extremely limited. GrubHub and Instacart provide zero coverage to their drivers. DoorDash and Uber Eats offer limited coverage only during active deliveries—the window from pickup to drop-off. That means you're completely uninsured while waiting for orders or driving to the pickup location. If you get hit during those periods, you're on your own, and your personal policy will deny the claim because you're logged into a commercial platform.
Another costly error is misclassifying workers to avoid workers' comp premiums. Yes, workers' compensation is expensive—it's often one of the largest insurance expenses for delivery businesses with employees. But classifying employees as independent contractors to dodge this cost is insurance fraud. When someone gets injured, state labor boards investigate. They'll reclassify your workers, charge you for all the premiums you should have paid, add penalties and interest, and potentially hit you with fines. One audit can bankrupt a small delivery operation.
Many startups also skimp on coverage limits to save money upfront. Choosing state minimum liability limits might cut your premium in half, but state minimums are shockingly low—often just $25,000 per person for bodily injury. A single serious accident can generate hundreds of thousands in medical bills, lost wages, and pain and suffering claims. When your insurance taps out at $25,000, the remaining liability comes directly from your business assets and personal assets if you don't have proper business structure protection. Saving $500 annually on premiums isn't worth risking a $500,000 uncovered claim.
How to Get Started With Delivery Service Insurance
Start by getting quotes for both a delivery endorsement on your personal auto policy and a standalone commercial auto policy. Compare the coverage limits and exclusions carefully—the cheapest option isn't always the best value. Most established delivery businesses eventually move to commercial policies because they offer higher limits, better coverage during all business activities, and satisfy commercial contract requirements that personal policy endorsements sometimes don't meet.
Next, secure general liability coverage before you sign your lease or business loan documents. Many landlords require you to name them as additional insured on your policy, and some lenders want to see coverage in place before releasing funds. Don't wait until the last minute—getting quotes and binding coverage can take several days, and you don't want to delay your business launch because of insurance paperwork.
Finally, build relationships with an independent insurance agent who specializes in commercial coverage. As your delivery business grows, your insurance needs will evolve. You'll add vehicles, hire employees, expand to new states, and take on larger commercial contracts—each triggering new coverage requirements. An experienced agent can guide you through these transitions, ensure you're never underinsured, and help you avoid expensive gaps that only reveal themselves when you file a claim. The cost of proper insurance feels significant when you're starting out, but it's infinitely cheaper than the cost of operating without it.
