Short answer: Before an independent used car lot opens, most dealers need a state dealer bond, garage liability (often written as an auto dealers policy), garagekeepers, dealer open lot coverage for inventory, coverage for vehicles driven on dealer plates, property insurance, workers’ compensation once they hire, and usually E&O, cyber and an umbrella. In California the dealer bond is $50,000 for most dealers, and in Arizona it is $100,000 for a used motor vehicle dealer, so line up the bond and the insurance before you apply for your license.
I’ve helped independent dealers get insured since 2005, and the calls that hurt most come from new dealers who learned about a gap after the first loss. Here’s the list I walk through with every new lot in California and Arizona, along with the other states where we place dealer coverage: Nevada, North Carolina, Tennessee, Texas and Utah.
What insurance and bonds does a new used car dealer need?
Think of it in three layers: what the state requires to get licensed, what protects the cars and the lot, and what protects the business itself.
| # | Coverage | What it’s for | Who usually needs it |
|---|---|---|---|
| 1 | Dealer surety bond | Required by the state to get your dealer license; protects customers and the state if the dealer breaks dealer laws | Every licensed dealer |
| 2 | Garage liability / auto dealers coverage | Injuries and property damage from your lot, your operations and vehicles you drive or let others drive | Every dealer |
| 3 | Garagekeepers | Damage to customers’ vehicles while in your care, such as consignments or cars left for detailing or repair | Dealers who hold other people’s cars |
| 4 | Dealer open lot (physical damage) | Your own inventory against theft, vandalism, hail, fire and collision | Every dealer with inventory |
| 5 | Dealer plates / test drives | Liability and damage when inventory is driven on dealer plates by you, staff or customers | Every dealer |
| 6 | Commercial property | Your office, sales trailer, tools, equipment and signs | Dealers who own or lease a building |
| 7 | Workers’ compensation | Employee injuries on the job | Any dealer with employees |
| 8 | Errors and omissions (E&O) | Claims over paperwork, disclosures, title or odometer mistakes | Most dealers, especially those who finance |
| 9 | Cyber | Breaches of customer data such as driver’s licenses and credit applications | Any dealer who stores customer information |
| 10 | Umbrella | Extra liability limits above garage liability and other policies | Dealers with higher exposure or lender requirements |
How much is the dealer bond in California and Arizona?
The bond is a licensing requirement, not insurance for you. It guarantees that you’ll follow the state’s dealer laws, and if a customer or the state has a valid claim, the surety pays and then looks to you to pay it back.
- California: $50,000 for most new and used vehicle dealers under California Vehicle Code section 11710, with a lower amount for dealers who sell only certain vehicle types, such as motorcycles or trailers. Check the current requirements with the California DMV Occupational Licensing branch.
- Arizona: $100,000 for a used motor vehicle dealer and $25,000 for a wholesale motor vehicle dealer under Arizona Administrative Code R17-5-402. Arizona MVD handles dealer licensing. See our Arizona used car dealer insurance page for the full licensing checklist.
What you pay for the bond is a percentage of the bond amount and depends mostly on your personal credit and experience. Get the bond and your insurance quotes moving at the same time, because the license application usually needs both.
What’s the difference between garage liability, garagekeepers and dealer open lot?
These three get mixed up more than anything else on a dealer policy. Garage liability pays when someone else is hurt or their property is damaged because of your business, like a customer who trips on the lot. Garagekeepers covers cars you don’t own that are in your care. Dealer open lot covers the cars you do own, your inventory. I wrote a full breakdown in Garage Liability vs. Garagekeepers: What Car Dealers Actually Need.
For open lot, ask how the policy values your inventory, what the deductible is per vehicle and per event, and whether theft of keys or “false pretense” sales (a buyer pays with a bad check or fake financing) are covered or excluded. In Arizona and other hail states, also ask about the hail deductible.
Who’s covered when a customer test drives a car on dealer plates?
Dealer plates let you move and demo inventory, but they don’t come with insurance. Your auto dealers policy is what responds when you, an employee or a customer is driving a car on your plates. Before day one, confirm who’s allowed to drive, whether customers need a valid license on file, and how unaccompanied test drives are handled. Also ask about vehicles you loan to customers and cars your staff take home.
Which coverages protect the business itself?
- Property: your office or sales trailer, computers, furniture, tools and signage. A leased lot usually has insurance requirements in the lease, so read it before you sign.
- Workers’ compensation: required in California and Arizona once you have employees, including a part-time lot attendant or detailer.
- E&O: responds to claims that you made a mistake in a sale, such as a missed disclosure or a title problem. This matters more if you offer buy-here-pay-here or arrange financing.
- Cyber: dealers keep driver’s licenses, Social Security numbers and credit applications. See our cyber insurance page for what a policy can include.
- Umbrella: adds liability limits on top of your garage and other policies. Some floor plan lenders and landlords ask for higher limits than a new dealer expects.
Coverage varies by carrier and policy; your policy language controls.
Frequently asked questions
Do I need insurance before I get my dealer license?
Plan on it. The dealer bond is part of the license application, and landlords, floor plan lenders and auctions usually want proof of insurance before you can operate. Start quotes four to six weeks before you plan to open.
Does dealer open lot cover cars sitting on my lot overnight?
That’s what it’s designed for, but every policy has limits, deductibles and conditions, such as lighting, fencing or key control requirements. Read those conditions closely, because a missed condition can affect a theft claim.
I’m a wholesale-only dealer. Do I need all ten?
Usually not all of them. Wholesalers still need the bond, liability and coverage for the vehicles they own and transport, but may not need garagekeepers or the same property limits. We’ll match the policy to how you actually operate.
Can you insure my dealership if it isn’t in California?
Yes. Zeigler Insurance places auto dealer coverage in Arizona, California, Nevada, North Carolina, Tennessee, Texas and Utah.
Opening a lot soon? Let’s review your coverage before day one
Zeigler Insurance is an independent, family-owned agency, so we compare dealer programs from multiple carriers instead of offering just one. Learn more about our used car dealership insurance, request a quote with our dealer quick-quote form, or call us at (925) 634-1240.
Zeigler Insurance & Financial Services, Inc. · 1300 Central Blvd, Ste B, Brentwood, CA 94513 · CA License 0H18234 · AZ License 7947333