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Comparing Dealer Floor Plans and Inventory Insurance Options

Dealers in the automotive industry must carefully consider their options for insuring vehicle inventory. Two primary choices are floor plan insurance and standalone inventory insurance. Floor plan insurance is typically bundled with floor plan financing programs provided by lenders. It primarily protects the lender’s security interest in financed vehicles by the dealer. Inventory insurance is an independent policy that provides coverage specifically for a dealer’s vehicle inventory, regardless of financing arrangements.

This guide analyzes key aspects of car insurance that auto dealers should evaluate when determining which car insurance carrier and solution best fits their needs. Various sections compare coverage scope, claims processes, costs over time, and flexibility of each approach. Additional product offerings and involuntary termination policies are also examined. By understanding the pros and cons of floor plans versus inventory insurance outlined here, auto dealers can make an informed choice on the most suitable plan to safeguard their vehicle stock.

What is Floor Plan Insurance?

Floor plan insurance specifically covers vehicles that are part of a dealer’s inventory but have not yet been sold to a retail customer. These vehicles are still considered the property of the floor plan lender until the dealer pays off the loan for that particular vehicle. Floor plan insurance protects the lender’s financial interest in the vehicle by repaying the outstanding loan amount in case of a total loss due to damage, theft, or an insurable event that destroys the vehicle.

The coverage of both dealer plate general liability insurance and garage liability dealer plate insurance is triggered from the time the dealer takes delivery of a vehicle until it is sold to a consumer. Common types of coverage included under dealer and general liability policy plate, garage liability, and garage liability dealer plate insurance, and under floor plan dealer plate general liability insurance are physical damage, fire, theft, and liability. Exclusions typically involve circumstances within the dealer’s direct control such as mechanical defects. Proper documentation is also needed to verify loan balances eligible for claims.

What is Inventory Insurance?

Unlike floor plan insurance, which focuses on protecting lender interests in vehicles not yet sold, inventory insurance safeguards a car dealer’s proprietary financial stake in their overall vehicle stock. This includes vehicles acquired by the dealer through both floor plan loans and those purchased outright via cash or other means of financing. Inventory insurance offers “loss of income” protection for vehicles anywhere on the dealer’s business premises, such as indoor showroom floors and outdoor display lots.

Coverage under auto dealership insurance now extends to used car dealerships and their owned vehicles, kept off-site for various reasons, perhaps in short-term storage while in transit between dealership locations. The coverage pays out the fair market value of any vehicles the dealer owns if owned vehicles are damaged, destroyed, or stolen to reimburse their investment. Deductibles apply, ranging from one to several thousand dollars, depending on the policy. Liability protection is another core component of auto dealership insurance, protecting against bodily injury to an employee injuries workers’ compensation other than incidents with vehicles on dealer property.

The Essentials to Compare Dealer Inventory Insurance

Eligibility Requirements

Both floor plan and inventory insurance policies have certain prerequisites that must be met to qualify for coverage. For floor plan insurance, the primary eligibility factor is participating in a lender’s wholesale financing program for purchasing new vehicle inventory. The dealer must verify their good credit/payment history with financial institutions to access competitive floor plan loan rates. Inventory insurance is more flexible as it does not require lender involvement.

However, automobile dealers still must carry proper business licenses in their state to legally operate businesses as used car dealerships or automotive retailers. They say businesses should also maintain complete vehicle acquisition and sales records that align with state laws and typical used car dealership operations. Both types of commercial auto insurance also screen dealers for past at-fault, theft, accident, and violation claims from the applicant insurance carrier’s operations that could trigger higher premium costs or denial. Overall, the eligibility guidelines focus on workplace safety and ensuring auto dealers meet basic industry standards through the legitimate establishment of businesses before approving coverage.

Coverage Amounts

The amount of liability, physical damage, and other coverage provided under floor plan and inventory insurance can vary significantly between policy options. For floor plan insurance, the maximum coverage limit usually depends on the floor plan lender’s approved line of credit to the dealer. This dictates how much of the total new vehicle inventory the dealer can purchase at one time using floor plan financing. Typical maximum monthly balances range between $500,000 to $5 million.

Inventory insurance offers more flexibility as lenders do not dictate coverage amounts. Dealers can select limits tailored to the value of their average stock levels, with common aggregate annual property damage coverage from $250,000 up to $2 million or more. Higher coverage options may require paying higher premiums, too. Within policy limits, the amount paid out per claim for individual vehicles is determined based on factors like each car dealership’s inventory/loan value.

Coverage Period

The timeframe when insurance protection applies differs between floor plans and inventory policies. For floor plan insurance, vehicles are covered from the moment a dealer receives them at their lot until each vehicle is driven off by a retail customer after the sale. Coverage stops as soon as the loan is paid off to terminate the lender’s security interest. This ensures uninterrupted protection for the duration a vehicle is part of a floor plan financing program.

On the other hand, inventory insurance provides continuous yearly coverage regardless of the loan payoff timeline. The coverage period is simply one year from the policy’s effective date. Some car dealerships may go for a longer three-year term if they can lock in stable rates over a prolonged period. A few insurers also offer monthly prorated policies if annual plans do not suit varying inventory levels throughout the year. Both options cover insured vehicles for 24 hours daily while factoring in planned closures like holidays.

Business Insurance Interest Rates

Business Insurance or General Liability Insurance for Auto dealers

Interest rates charged on floor plan loans directly impact the overall cost of utilizing floor plan insurance versus other alternatives. The rate a dealer obtains from their floor plan lender ties into how much daily interest they need to pay on vehicles sitting in their inventory. Rates can vary significantly between lenders based on their creditworthiness assessment of individual dealers. Generally, smaller dealers may pay 2-3% above the prime rate set by the Federal Reserve, while larger high-volume dealers with excellent payment histories can obtain rates less than 1% above prime.

Dealer incentives like meeting monthly new car sales goals may also affect their interest costs. In contrast, inventory insurance functions like other commercial policies with standardized flat premiums that do not fluctuate once the policy period begins. Dealers enjoy stability without debt financing charges. However, premiums still factor in the risk characteristics of the cars and the unique risks of a dealer’s operations to determine competitive annual or monthly quotes compare rates.

Commercial Auto Insurance Payment Structure

Floor plan insurance premium payments are fully financed into participating lenders’ overall floor plan loan amount. This allows dealers to pay for coverage indirectly as an included expense covered by their line of credit. Premiums are paid incrementally via the daily floor plan interest charged on outstanding vehicle balances.

In contrast, inventory insurance requires direct out-of-pocket payments to the insurer. Payments can be made monthly, quarterly, or annually, depending on policy terms to keep coverage active.

Annual plans offer a small discount for prepaying the total premium upfront compared to multiple installment payments. Dealers can also opt to pay through installments at a modest interest charge. Some insurers provide a limited grace period if the payment is delayed past the due date before coverage can lapse. Both options facilitate budgeting insurance costs together with other operating expenses.

Collateral Requirements for Auto Dealers

Collateral requirements refer to assets pledged to the floor plan lender or insurer as security against the debt obligation. Floor plan loans obviously must be secured by the new vehicle inventory itself since those specific cars are purchased with loan funds. Lenders have strict policies around inventory documentation and inspection. On the other hand, inventory insurance involves no pledging of physical collateral since it solely protects the dealer’s investment, not lenders.

However, to demonstrate the business or car dealerships’ financial viability, insurers may demand guarantees like liens on company assets like property, building service vehicles, or equipment owned by the business car dealership or dealer. Larger car dealers or more businesses with higher-risk operations could face mandated collateral to obtain coverage if they have low business infrastructure values. Otherwise, the car dealers and small businesses can self-insure with their actual cash value or sufficient net worth serving as implied collateral instead of physical asset liens.

Vehicle Inspection Requirements

Both floor plan and inventory insurance policies require periodic inspections of dealer vehicle inventories to validate coverage and mitigate risks. Floor plan lenders conduct frequent site checks and documentation reviews to account for each collateral vehicle. This ensures loans are only tied to actual vehicles in stock. Dealers must cooperate with inspections and address any discrepancies promptly.

Inventory insurers also mandate auto dealerships to have occasional physical audits where staff inspect VINs and images to tie vehicles back to the used auto dealership insurance current policy period. Any covered vehicles located off-site during inspections must be made available as well. The onus is on used auto dealership insurance and auto dealerships to report vehicle sales, acquisitions, and lot movements timely to match records. Failure to pass inspections can void coverage and put the dealer in breach of loan covenants if substantial mismatches are discovered.

Voluntary Termination

Surety Bond after Customer slips

Both floor plan and inventory policies allow voluntary mid-term termination but with differing conditions. Floor plan insurance ends automatically once all vehicle loans are paid off since further coverage is unnecessary. Dealers confirm termination with lenders.

However, inventory policies require submitting advance notice to the insurer, typically 30-60 days, for termination to take effect. Any unused premium is credited back prorated unless a claim is filed during the pending period, which requires full payment. Reasons for termination could include switching lenders or insurers or opting to self-insure.

While terminating avoids future costs more than riding out a term, reasonable notice periods prevent penalties and provide time to establish new coverage. Overall processes differ, but many carriers aim to balance flexibility with proper lead times.

Involuntary Termination

Involuntary termination occurs when the insurer or lender cancels coverage without consent before the planned expiration. This differs from voluntary termination by the dealer. Cancellation notices provide the reason for the removal of protection. Common causes for both policies include chronic late payments or non-payment after notice periods.

Persistent non-cooperation during underwriting inspections or claims investigations may also lead to termination. Insurers could cancel either policy for substantially changing operations violating original underwriting terms. In the case of floor plan insurance, lenders have the right to involuntarily terminate for loan defaults or contractual violations by the dealer.

Dealers must promptly secure replacement general liability collision coverage, following involuntary cancellation collision general liability coverage, to ensure that automobile dealers maintain consistent protection for their vehicle inventory general liability and meet lender obligations.

Filing a Claim

When filing a covered claim, the initial steps are largely similar for floor plans and inventory policies. For both, prompt reporting of the loss details is important, whether contacting the insurer by phone or online. Providing complete information about the incident and vehicles involved assists in timely coverage evaluation.

Some business differences may arise in the claims handling. Floor plan claims processing considers a lot of business, insurance business, and lender side business interests in addition to the dealer’s business side, potentially allowing quicker resolution in certain business scenarios. Inventory claims could see longer appraisal scheduling under select business conditions if vehicles are stored off-premises.

On the other hand, inventory policies give the dealer more autonomy over claims management. Floor plan insurance is more tied to lender relationships and agreements. Cooperation on inspections and discussions with assigned adjusters remains important under either policy. Dealers prepare needed documentation in advance and respond promptly to further requests.

The collective goal is a fair assessment to facilitate appropriate payments that relieve the dealer’s financial burden following a covered loss. Transparent communication works to return business activity to normal as smoothly as possible under both coverage structures.

Claims Processing Time

While claims timelines generally align, some intervals can vary modestly between floor plans and inventory insurance. Floor plan claims involving repossessed vehicles may resolve within 1-2 weeks quicker than inventory matters since lenders have a direct stake. However, the goals are to complete normal physical damage claims within similar 2-4 week standards. Complex claims proportionately extend timelines for both policy types as well.

A potential factor is off-site stored inventory vehicles could lengthen appraisal scheduling by a few extra days compared to floor plan assessments. In addition, partial reserves and liability decisions may come slightly sooner for floor plan claims due to lender participation.

Overall, neither consistently lags behind processing tempo. Preparedness by providing documents and open communication on the dealer’s part streamlines handling and managing claims irrespective of the other dealer’s open lot coverage, insurance coverage, or insurance coverage insurance company coverage structure. Transparency on customary timeframes helps dealers efficiently plan recovery paths post-loss under floor plan or inventory protection. Timely resolution remains the objective for valid claims.

Total Cost Comparison

When evaluating insurance options, dealers consider the total cost implications over time. Premium costs constitute a primary difference between floor plans and inventory coverage. Floor plan premiums are folded into daily interest charges paid to lenders as part of flooring contracts. Inventory premiums involve direct payments to the insurer and appear exclusively as insurance expenses. However, floor plan policies often carry higher effective rates due to additional loan charges assessed by lenders.

Deductible levels also impact costs, with inventory typically possessing lower deductible thresholds that ease claim payouts. Over the long run, inventory insurance may carry a lower total cost if a dealer prefers paying direct premiums instead of higher interest assessments under floor plans. Dealers must accurately factor in individual financing terms and loss histories to project expenses under each structure. Combining the options may yield the best coverage and most cost-competitive overall protection.

Additional Product Offerings

Floor plan and inventory insurers provide more than basic vehicle protection coverage. Additional products are available to build on core services. Gap insurance assists with financing by covering deductible shortfalls between insurance payouts and outstanding loans if a total loss occurs. For inventory policies, renters/leasehold interest coverage extends protection to facilities like dealership buildings. Dealers may insure specialty antique/classic vehicle stock through specialty add-on policies.

Insurers offer various property crime insurance options as well as general liability and insurance for garages, such as inland marine coverage for dealer tools/parts in transit. While floor plan policies do not directly provide these supplementary offerings, some insurers coordinate related ancillary insurance carriers and products. Dealers benefit from exploring compatible extra coverage that suits needs under either insurance type. This affords opportunities to bundle multi-line policies for greater underwriting convenience and potentially lower composite rates, too.

Auto Dealer Insurance Flexibility

When choosing between floor plans and inventory insurance, dealers must also evaluate the options’ flexibility features. Floor plan policies are more rigidly tied to lender-dictated terms that offer fewer choices. Inventory coverage allows greater autonomy to adjust limits and deductibles as a dealer’s needs change. Adding or removing vehicle makes and models may require floor plan lender pre-approval but can usually be handled independently under inventory arrangements.

With the latter, dealers control voluntary policy termination and replacement timing, too. However, floor plan insurance automatically stays current as long as the dealer’s dealers open lot insurance and coverage associated with the loan remains the dealer’s own dealers’ open lot insurance policy, general liability policy, and lot insurance coverage. Swapping lenders sometimes demand new floor plan providers and garage liability insurance. Overall, inventory insurance generally provides dealers more flexibility to do risk management, tailor coverage specifics to business, and make timely updates responding to fluctuating business conditions. But floor plan policies offer set-it-and-forget-it simplicity through auto-renewal.


Rounding up the comparison, we have helped you understand what each option entails to decide on your vehicle stock. While floor plan coverage bundles conveniently with floorplan financing arrangements, inventory policies provide more flexibility to customize coverage independently. You can get a smoother decision-making process when picking the option that is more beneficial for your business insurance with the details we have provided. Remember to always keep an eye out for other auto and business insurance-related information from us.

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