How Much Does It Cost To Insure A Semi Truck And Trailer? Lets's Break It Down.

As you’ve probably heard, insurance for a truck and trailer is not cheap.  In fact, it’s expensive and is probably one of the largest expenses that a transportation company has.  And just think, your insurance bill will never go away for the life of your business, so it’s extremely important that you don’t overpay and that you find the most competitive terms and rates available in the market.  With so many lines of insurance available for business owners, which ones are we referring to? Let’s stick with the three principal lines of insurance that a transportation company will put in place - the Auto Liability, Cargo and Physical Damage insurance.

So, how much does it cost to insure a semi truck and trailer?  The average cost of insurance ranges from $12,000 to $19,000 per truck per year.  These numbers are inclusive of $1,000,000 in Auto Liability, $100,000 Cargo insurance and $40,000 of Physical Damage coverage.  Certainly your numbers can vary based on your company’s individual risk factors, but in general these are very reliable figures that our agency sees on a daily basis.

Let's break down how we arrived at those figures.

Auto Liability is by far the lion's share portion of insurance premium and those figures range between $8,500 to $13,000 while Cargo insurance hovers between $800 and $1500.  The final piece of coverage can also have a big variance for you in particular but the Physical Damage portion is usually between $2400 and $4,000.

Which insurance is required to get my DOT active?

We mentioned that the premium above included three lines of insurance coverage - the Auto Liability, Cargo insurance and Physical Damage coverage, however, the only line of insurance that is mandatory by the Federal Department of Transportation is the Auto Liability portion.  If you want to actively haul loads under a DOT number, whether it’s yours or someone else’s, you must have an active liability policy in place.

Now just because you purchase Liability insurance doesn’t necessarily mean that you’ll instantly be making money on the road, chances are high that your shippers will want you to carry Cargo insurance to protect any damage that occurs to the cargo during transport.  If anything happens, they want to ensure that they will be compensated for the value of their goods and that the transaction won’t end up costing them money. To prevent this, your shippers will usually require proof that you carry $100,000 of Cargo insurance or they will not release the load to you.

Last, the Federal Department of Transportation will not mandate you to carry Physical Damage insurance, but depending on who your lender is, they may require you to carry the coverage before they fund the loan.  This is to prevent the loss of their investment in the rare event that your vehicle gets totalled before the loan is paid off.

What is the down payment and monthly payment?

The majority of transportation companies do not pay for their insurance policies in full, they finance them.  There are two ways that the policy can be financed, either through their insurance carrier who will allow monthly payments to them, or through a premium finance company who will fund the policy and the company pays the finance company on a monthly basis.

Both options will require a down payment and monthly payments.  Typically our clients are seeing down payments between 16.7%-25% and 10 monthly payments with interest between 15-20%.  Using these figures and the premium figures above, here is how that shakes out:

$12,000 premium with down payment 16.7% and 10 payments with 15% interest

Down payment $2004 and payments of $1,150

$19,000 premium with down payment 25% and 10 payments with 20% interest

Down payment $4,750 and payments of $1,710

How can I get that premium down?

The good news is that there are many pieces of your insurance premium that are within your control, understanding what they are can help you get great quotes from desirable insurance companies with great rates.

State of Domicile

Now this one is tricky, and we’re certainly not encouraging you to do anything illegal or unscrupulous, but some states have higher loss ratios than other states do, which in turn, they have a higher premium base rate.  

As an example, we are located in Chicago, however, the Indiana border is only 20 minutes away and Indiana has a much lower base rate.  If you are in a similar situation where a neighboring state has a lower rate and you will be doing plenty of business in that neighboring state then, with proper legal and accounting advice, you may want to consider incorporating in that state.  This could save you thousands of dollars in premium.

Drivers

Getting the right drivers on your team is absolutely critical to the success of your business so you want to make sure that you hire people with pristine driving records who pass drug tests with flying colors.  

Drivers with even one moving violation or accident on their record could cost you thousands of dollars extra on your insurance policy, so this step is extremely important.  It’s one thing to let a driver with accidents on his record drive their own vehicle, but would you really trust them to operate company owned equipment? Likely not.

But the issue could get even worse, if the proper vetting procedures weren’t done upfront and that same driver causes an accident on your insurance policy, that is now on your record (also known as loss runs).  Not only are insurance companies going to automatically decline you, but you may get rates that are so inflated that it makes it extremely difficult to turn a profit. In fact, this happens so often that owners start brand new companies with new DOT numbers all the time.  This has turned into a very big issue that insurance companies are trying to avoid. Pick your drivers very carefully!

Radius

This one is quite straightforward to understand but actuaries have pinpointed a correlation between the distance you travel and the number of claims that are made.  The further you travel the higher your premium will be. It’s not recommended that you stay local just to save on your insurance premium, but if you are only doing business regionally, or even within your neighboring states, it’s best to reduce the radius of your policy to save on premium.  Adjust this only if it makes sense, but this is an easy way to reduce your insurance premium.

Credit

It’s always advisable to do what’s necessary to improve your credit score, but did you know that in recent years some insurance carriers have your credit score as part of their algorithm when calculating premium?  Two extremely similar risks with different credit scores can have drastically different premiums, so much so that the higher premium can be cost prohibitive and not make sense to purchase.

Insurance Agent

Having the right agent on your team is essential for a transportation company.  Find an agent who is not a captive agent, meaning they have contracted with, and are bound to, one insurance carrier.  As per their agreement, they can only sell one insurance company’s products and therefore don’t have a grasp of the current marketplace.  

When you have an agent that has access to many insurance companies, you can be more confident that the pricing and terms you receive are the most competitive in the market.  A good agent will fight on your behalf for the best rates but will also walk you though what you are purchasing.  

You’ll also want to make sure that your agent doesn’t just “dabble” in the transportation space, but instead has made the transportation space their niche.  This usually means that they have access to the most competitive insurance markets, have solid relationships with their underwriters and can service your needs well.

Our agency has made our name in the transportation space through years of service.  Our focus is only the trucking community and we do it extremely well. If you want to know how much it costs to insure your semi truck and trailer then we encourage you to give us a call, we’d be happy to help you with your insurance needs!

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