Owner Operator Insurance Requirements - What You Need Vs. The Extras

Owner operators are in a unique position because they have the ability to run their business lean from expenses, essentially trying to cut out as much unwanted expenses as possible so that their bottom line is as much profitability as possible.  That being said, trucking insurance is probably one of the largest fixed expenses an owner operator will commit to in their business so it only makes sense that you know what your insurance requirements as an owner operator are.

There are multiple ways to answer this question but we’ll break it down to the two most common scenarios - owner operators with their own authority vs leased owner operators.

Owner operators with their own authority

All trucking companies, whether you’re a new venture or a seasoned trucking company, are required to have liability insurance to start and keep their authority active and in good standing.  The minimum required liability insurance is $750,000, however, there are certain carriers that would have higher requirements. As an example, those who transport automobiles and recreational vehicles are required to carry a minimum of $1,000,000 in liability coverage and yet those who transport hazardous material require much more coverage at $5,000,000.  Your insurance agent and carrier can help you get the state filings and FMCSA filings completed on your behalf as well.

Leased owner operators

If you are an owner operator who hauls loads under another company’s DOT number then your insurance requirements are different.  Since you aren’t required to carry any liability coverage under your company name, you as a driver, and your vehicle will have liability coverage under the motor carrier that you haul for.  You will need to be added and scheduled onto their policy for liability coverage to be extended to you. In lieu of you purchasing liability coverage that gets filed with the DOT, you will be asked to get bobtail coverage and physical damage coverage for your truck.  These coverages are relatively inexpensive compared to a liability policy.

What is Bobtail Coverage?

Bobtail insurance is a Liability only policy that covers you when you are NOT on dispatch.  In short, if you are using your truck for things other than business and you get into an accident that causes injury or property damage, you would be covered.  This policy is much less robust than a standard Liability policy, but for someone who is covered under someone else’s DOT, this is really the only additional piece of insurance you would need.  The only other thing you would want to consider is purchasing Physical Damage coverage should anything happen to your own vehicle. Both coverages can usually be packaged together into one policy.

What you should know about trucking insurance

To be a trucking company that is legally insured you’ll need to have a commercial trucking liability policy with a minimum limit of $750,000 in coverage.  This is a liability policy which means that it would cover up to $750,000 in damages that you are legally liable for. This includes bodily injury and property damage to others and their belongings, therefore, this is not a 1st party policy and will not respond if bodily injury or property damage occur to you or your vehicle.

Keep in mind that although, for the most part, $750,000 is the minimum required by the FMCSA,  your shippers will probably require at least $1,000,000 of liability coverage. If you are found liable for any amount greater than your policy limits, the other party can legally come after your wages and savings, because of this, you always want to discuss with your agent to make sure that you are properly protected.

So how do you protect your property if liability insurance will only cover someone else who was injured, or if damage was caused to their property?  You can purchase physical damage coverage for your truck, which is a 1st party policy. This is comprehensive and collision coverage that will be triggered in the event that damage is caused to your vehicle by way of an accident or through an unexpected event such as an act of nature.  

The premium for physical damage coverage is determined as a percentage of the value of your vehicle and is usually between 6-10%.  As an example, if your vehicle were worth $50k then the physical damage premium would be roughly $3-5k. Many insureds make the mistake of placing the value of their truck as what they paid for their vehicle and not the actual current market value of their truck/tractor.  Keep in mind that the insurance company will never pay you more than your vehicle is actually worth.  

Another insurance that most of your shippers will want you to carry is Cargo insurance.  This insurance is triggered if damage is caused to your load during transport. You’ll want to make sure that you detail the types of loads that generally transport to your insurance agent as this will have an impact on the insurance carriers that will insure you, as well as the insurance premium associated with your policy.  The standard limits on Cargo insurance is $100,000, however, some motor carriers will need to carry more if they haul more expensive items such as automobiles, heavy machinery, mobile homes, recreational vehicles, etc. If you carry refrigerated goods, make sure you disclose that to your agent so they include Refrigeration Breakdown coverage in the event that the refrigeration system malfunctions during transport and your load gets declined from the receiving party.

What is the average cost of commercial truck insurance?

Commercial trucking insurance is a big portion of a trucking company's overhead expense, so it’s important for you to work with an agent that understands your needs and has access to the right markets to get you the most competitive pricing.  If you’re looking to get an idea for what insurance costs for a trucking company in today’s market, feel free to reach out to us and discuss your circumstances or you can also fill out our quick quote form and have us start the quoting process for you now.  

To give you a ballpark estimate on overall insurance costs is very difficult without knowing anything about your vehicles or drivers, however, our current average premiums for Liability and Cargo coverage on a tractor hauling general commodities with a driver who has a clean record (no violations or accidents in the last 3 years) is approximately $14k+ per truck.  If you’re running hotshot hauling with a pickup truck, your rates will be less, and if you have drivers with multiple items on their MVR then your premium will be more.

Do owner operators need Workers Comp?

This is a risk-tolerance question that ultimately only you and your company can decide on.  In most states, a sole-proprietor or self-employed person, such as an owner operator, has the right to elect purchase of Workers Compensation coverage.  Therefore, in most circumstances, you are not required to purchase this coverage, in fact, most insurance companies will actually exclude the business owner from the policy as you cannot sue yourself.  

The financial risk to the company becomes greater as you start adding on more owner operators to your fleet.  When a driver becomes injured to the point when they cannot drive any longer, therefore unable to produce an income for their family, the driver and their legal counsel can make an argument that they were, in fact, employees of the company and not an owner operator.  For this reason, many attorneys will advise that you purchase Workers Compensation coverage at the early onset of your business to prevent a crippling lawsuit from financially ruining your business.

In cases where Workers Compensation coverage is at question, courts tend to be lenient on the definition of “Employee” to give legal protection to those who are in need of it.  Even moreso, aggressive attorneys are motivated to find ways of compensation for their clients. This means a hard fought battle on your site, but a loss any way you look at it.

What about Occupational Accident coverage for owner operators?

So what is occupational accident coverage?  Essentially it is coverage that applies to independent contractors who are injured on the job.  This coverage can apply to help pay for medical bills, death benefits and even supplement when there are lost wages.

So aren’t these the same thing? What’s the difference between the two?

The two coverages are similar with distinct differences.  An Occupational Accident policy will cover some injury expenses while on the job, there is a death benefit component and can even be triggered to pay out some lost wages, but it is not a robust and comprehensive as a standard workers compensation plan.  Occupational Accident is only meant to cover independent contractors, not employees, and is missing one major component found in most commercial policies - legal representation. The cost to legally represent your company can accumulate very quickly and since the onus to prove that the cause of injury or illness was not, or no longer is, your company’s fault, legal and investigative costs can escalate very rapidly. 

How much money do you need to become an owner operator?

This number can really vary depending on the type of equipment you decide to purchase, so let’s exclude the equipment in the upfront cost.  A generous initial cost your can reasonably expect to incur to start up a trucking company can range between $8,000 and $12,000. These figures include the formation and registration documents that can run up to $1500, IRP plates can run upwards of $3,000, heavy vehicle use tax can run about $600 per truck, state taxes can vary but are approximately $500, and a down payment on insurance will be needed which can run between $3k-$4k.

Overall, being an owner operator can be very rewarding, however, there are a lot of upfront costs associated with having your own trucking company.  It’s best that you conservatively weigh out your options, from a financial standpoint, and decide which is more feasible for you. It’s best to be conservative on your estimations as the costs quickly creep up, but if you’ve made the decision to go after it, we’d love to help you out with your insurance needs.  Give us a call today with any questions you may have!

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