Texas Dealers Insurance

Types of Texas Dealer License Insurance

The state of Texas requires every motor vehicle driven on any roadway to be insured, including your demos and all service vehicles owned by the dealership. It is illegal to drive any motor vehicle in Texas without proof of insurance or financial responsibility. It is also illegal for any motor vehicle owner, such as a dealer, to allow anyone else to drive the owner's vehicles, such as your demos, without insurance. Texas Administrative Code Title 28 Part 1 Chapter 5 Subchapter B

Before you purchase any inventory to resell you must obtain an insurance policy sometimes referred to as dealer insurance policy or a dealer garage policy. Dealer insurance is a special type of business insurance that is quite unique in that it covers you when your customers are test driving your vehicles, it covers you, or an employee driving a vehicle back & forth from an auction, and it also covers you if someone is injured while on your lot

Many insurance agents do not sell dealer insurance. You might call your insurance agent to find out if they carry dealer insurance and if they do not, you will need to contact an insurance agency that carries commercial insurance. Be sure they can explain the type of coverage that would be best for your dealership.

Dealer insurance pricing normally depends on the location of your dealership, your experience, and the number of dealer license plates you possess. Dealer insurance can be quite expensive, however, once you become established and begin generating profits you will find that dealer insurance is only a small part of your operational expenses.

Types of Dealer Insurance are
Dealer Liability
Dealers Open Lot
Garage Keepers
Errors & Omissions
Employment Practices
Workers Compensation
False Pretense

Dealer Liability or Garage Liability
• If you customer wrecks your demo into another vehicle, it will cover the other vehicle, not your demo because it is liability only

Dealers Open Lot
• Full coverage for your inventory if your vehicles are damaged by wind, natural disaster, and sometimes hail. It will also cover you in cases of theft. Be sure to carry enough coverage for your inventory

Garage Keepers
• Covers vehicles that are owned by a customer that is leaving their vehicle for repairs

Errors and Omissions
• Covers a dealer that failed to comply with Federal Truth in Lending Act, made an “error” in paperwork submitted to MVD, failed to disclose prior damage, failed to perform title search, etc.

Employment Practices Liability
• Provides coverage against sexual harassment lawsuits, wrongful termination of an employee, wage payment disputes, deprivation of career opportunity, discrimination, etc.

Workers Compensation
• Provides coverage in case of work place injury to an employee. We will cover workers compensation later in the course

False Pretense
• Covers a dealer that purchases a vehicle from some that did not have the legal selling rights, also covers when a person purchases a vehicle from the dealer in a fraudulent manor, for example using a stolen id

Any dealer in Texas that does not maintain financial responsibility on services vehicles, drives a demo or allows a customer to drive a demo without financial responsibility, could face penalties.

Not where do you find dealer insurance, you will not log onto Progressive, or Geico, you will not even be able to get an insurance policy from your state farm agent, you might contact your Current Insurance Agent, Ask Other Dealers, or do an Internet Search

you might go to google, type in Texas Dealer Insurance and as you can see here, there are several companies that will assist you with obtaining coverage for your inventory.

Retail Contract or Bill of Sale

Every retail and wholesale sale of a motor vehicle must be preceded by a written contract that contains all of the agreements of the parties an shall be signed by the buyer & the seller.

If financing is involved State law requires you have a Retail Installment Contract which can be printed if using any Dealer Management Software. If financing is not involved you must have some type of written retail contract or bill of sale.

The bill of sale clarifies the terms of any motor vehicle transaction in writing.

The bill of sale should include the following:
• Date of sale
• vehicle description (i.e. year, make and model)
• vehicle identification number (VIN)
• name and address of person purchasing the vehicle
• sale price
• all other fees and charges that are the total cost of the vehicle including trade-in, pay-off of trade-in, extended warranty, documentary fees, insurance, etc


We are here to help you start your Texas motor vehicle dealership!

Texas Dealer License

Delus Johnson-Lead Instructor
Automobile Dealer Training Association