After the purchase of a truck and trailer, insurance is probably the next largest expense that a carrier must consider for their yearly business operations. Many seasoned carrier companies and drivers are well versed in the ins and outs of insurance; but, for new companies and new drivers who are independent owner operators, this area can be tricky.

Insurance is a major yearly expense and can really eat away at the bottom line of profitability for a small business. Therefore, it’s important to understand what coverage you need. An accident or a claim can add up to significant costs; so, an insurance policy that is suited to the individual needs of the carrier is a necessity.

This week, we are reviewing the different types of insurance, what minimums you need to operate, the average costs, and what you can do to help your bottom line profitability.

Types of insurance you need and what minimums do you need

1. Liability Insurance – covers any damage to other parties involved in an incident. Primary liability coverage (which is protection for the public) is required by FMCSA to obtain your own authority. FMCSA only requires $750,000 primary liability coverage, but most shippers/brokers require $1,000,000.

2. Physical Damage Insurance – covers any damage to equipment from various causes. Physical damage coverage is not required by law; however, it is key to have since it covers the investment you have made in your truck. In addition, it covers a variety of incidents, such as collision, fire, theft, vandalism, and weather (hail or wind). One important thing to understand regarding a damage policy is that it doesn’t pay more than the present book value of your equipment at the time of the accident. Besides the cost for damage insurance (touched on later), another important number to watch out for is the deductible, which is what the policy holder agrees to pay before insurance kicks in. $1000 is a typical deductible amount for commercial vehicles.

3. Cargo Insurance – covers the cost involved to damaged or stolen goods that are hauled in your trailer. The federal government requires only $5,000 is cargo coverage, but this is an unrealistic amount. Most shippers and brokers require that carriers hold a requisite minimum $100,000 cargo coverage. This is standard practice in the produce transportation industry. In addition, specialty produce (for example, cherries) may require a higher cargo coverage amount.

1. Reefer Insurance – This coverage is crucial to have in the produce transportation industry. It covers damage done to cargo inside your trailer by reefer motor failure. One critical thing to remember if you have this insurance is that the reefer unit must be properly maintained, and records of maintenance kept, for the coverage to be effective.

1. Bobtail insurance: this is a liability insurance that covers you when you are driving your tractor without the trailer, regardless of whether you are under dispatch. While not mandatory, it is highly recommended for owner operators who take their tractors home, when not on the road. Owner operators working under their own authority

Average Costs of Insurance

Insurance expense for all the types listed above can add up quickly. Budgeting in advance is necessary in order to anticipate your costs. Some things that will affect your insurance costs are: your age, driving record, the age and condition of your equipment, the types of commodities you haul, the lanes you run, and state requirements. Here is what an owner operator is likely to pay each year:

*This is assuming you have a safe driving record. For newer authorities, these prices might be increased.

Many carriers finance these payments over a series of months. The finance company will add on interest charges to the total policy cost, and will structure the payment plan for you. As examples, some finance companies may require a down payment between 10-20% of the total cost of the policy, and then 10 equal monthly installments including interest. Others may divide the policy plus interest into 12 equal payments.

Ways you can help your profitability & things to watch out for

As you can see, insurance costs are a huge yearly expense. So, here are some ways to help make sure you are protecting your profitability and getting the best insurance rates possible for your businesses:

• Be up front with your insurance agent regarding your operations and your driving records.
• Operating your business in a professional manner and remaining loss free is the best way to receive the best rates for your business.
• Know your policy. Look at your premiums and what you are getting as coverage for what you are paying for. Read every detail of the policy. If you don’t understand the policy’s wording, ask. If you don’t, there is a good chance you could end up with more or less insurance than you need.
• Lower rates are not always best. If you pay lower premiums but do not have adequate coverage, this will mean shippers and brokers will not load you.
• Drive carefully – on and off duty. A speeding ticket (even in your personal vehicle) will increase your insurance premiums.
• Use heightened caution when you are hauling cargo that is attractive to scammers and criminal activity, such as alcohol, cigarettes, and electronics. Park only in lighted, secured areas, and don’t leave a truck or trailer unattended over a holiday weekend.
• Keep an eye on third parties who come in contact with your equipment. For example, don’t leave your cargo and your trailer in the hands of lumpers and dockworkers you don’t know. Keep an eye on what’s going on to make sure nothing’s damaged.
• Be familiar with the cargo you are hauling. Read the load sheets and BOLS, and make sure your cargo coverage is adequate for what is being hauled.
• Keep current. Keep up with your payments; if you let the insurance lapse, you will face higher premiums in the future, or difficulties finding an insurer. In addition, check in with your insurance agent every year, and adjust your coverage if you change the value of your equipment.
• Pay yearly. Although it is a high price to pay all at once, if you can make this work, insurers may offer you a reduction in your premium (sometimes between 10-20%). It also means that you don’t have yet another monthly cost to worry about.
• Weigh higher deductibles over lower limits. Bigger financial responsibilities on your part translate to lower premiums. Be careful, though, because a higher deductible now could lead to you paying even more down the road.
• Compare the insurance rates of several companies. The best way to ensure you are getting an honest and fair rate is to compare offers between different sources. Shopping around may seem like a lot of work at the time, but can save you hundreds a year!