There is coverage you need. Without it you cannot legally operate. This is the starting point for everyone, like the foundation for a house. But like that foundation, if that is all you have, you better hope it never rains.
Then there is coverage you should have. This is more complex and situation specific. Below we outline some things to consider.
DOT Requirements
The Federal Motor Carrier Safety Administration (FMCSA), which is part of the U.S. Department of Transportation (USDOT), requires minimal amounts of liability and cargo insurance. The type of insurance and amount of coverage required varies based on the authority and type of freight handled. A summary can be found on the FMCSA website.
The FMCSA requirements are applicable for all interstate shipments. They are the bare minimum, though. Many shippers require more than the minimum, and most carriers want to have more than the minimum.
The FMCSA also maintains a list (current and historical) of the basic insurance coverages for every carrier in its database. This is publicly available information. And many shippers do check it.
State Laws Differ
For intrastate shipments, the law of the applicable state applies.
Unfortunately, there is not one website that lists all the requirements for each state. For that information each state must be checked. It is cumbersome, but necessary if you do intrastate shipments.
As a general rule, the state laws are at least as stringent as what the FMCSA requires. Many states have additional or higher requirements, though. For instance, states may require other types of insurance, such as worker's compensation, that the FMCSA does not require.
Many carriers choose to just do interstate shipments and for those carriers the state-specific requirements would not apply. But for carriers that handle intrastate shipments, checking and complying with the state-specific requirements is necessary. Most states list those requirements online within their state governmental website.
What Is Normal?
Even the FMCSA basic requirements are considered too low by most experts. A study put out in 2014 concluded the amounts then required were too low (they were established in the 1980s) and they have not been increased since.
The minimum $750,000 general liability established in 1985 would be over $1.6 million in 2013 dollars if adjusted for inflation per the core consumer price index (CPI). The inflation rate for the medical CPI is higher and equaled over $3.1 million in 2013 dollars.
The $750,000 in general liability (for general freight carriers) is often contractually increased to at least $1,000,000 by many shippers and brokers. An amount of one million dollars may be sufficient to cover many accidents. For a catastrophic accident, however, even one million dollars is insufficient. Many experts consider an amount of $5,000,000 to be a minimum amount of coverage a carrier should have. Carriers that handle hazardous materials or that have significant resources should consider general liability well in excess of $5,000,000.
Cargo liability of $5,000 per truck, the FMCSA minimum, is extremely low. A level of $50,000 or more should be considered a minimum amount, and often is the minimum requirement that shippers and brokers look for in a carrier.
The general liability and cargo liability must be in place to satisfy the FMCSA requirements. But to meet your needs, they are just the starting point.
Below are some other types of insurance you should consider.
- Physical Damage. Your tractor(s) and trailer(s) are significant investments. (This will likely be required if you borrowed money to get your equipment.)
- Gap. Applies when a gap exists between the loan payoff amount and market value in the case of a total loss.
- Rental Reimbursement & Towing.
- Trailer Interchange. To cover damage to a non-owned trailer.
- Medical. Not here referring to health insurance (although that is also important) but to insurance that covers medical care needed due to an accident.
- Worker's Compensation. For intrastate shipments, this is required in some states. Even if not required, it should be considered as a way to provide income after a work injury.
- Non-Trucking Liability. If you ever use your truck for personal (not business) purposes.
- Umbrella (Excess Liability). This coverage is very important. In general, it covers personal liability and property damage after the other insurance coverages are used. This additional coverage is flexible since it can be used to pay for different types of liabilities. It does not cover everything, but it provides critical extra coverage to be used where needed.
The above does not cover all possible circumstances. An insurance agent that understands your particular situation should be able to design coverages to meet your needs. Getting quotes from a few agents will help to make sure you get competitive rates.
For owner-operators that lease onto a motor carrier, often the motor carrier's auto liability and cargo coverage will apply, but only when under dispatch for the carrier. Some motor carriers also require those owner-operators to have occupational accident coverage (OAC). The occupational accident coverage provides similar benefits to workers compensation but often at a lower level and with more restrictions.
Other Considerations
Insurance companies take many things into consideration when determining rates. Your driving history is obviously important. Some companies look at credit history. Previous claims (if any). Domicile state. Your equipment (its age and value)ì are factors, especially for physical damage insurance. (A rule of thumb is the physical damage premium will be about 5% of the covered value of the truck.)
New (or newer) trucks can be more expensive to insure (for physical damage) but also may have features that can decrease the cost of the other insurance categories. Advanced safety features -- things like collision avoidance systems, electronic stability control systems, lane departure warning systems, improvement in air disc brakes, tire pressure monitoring can lower insurance costs. One of the most important features to help with insurance rates is the use of in-cab cameras. If your truck has these, make sure the insurance company knows that. (Yes, they should, but they may not.) And newer trailers also may have advanced features such as tire monitoring, rear cameras, and enhanced lighting. Help the insurance company help you by highlighting any feature that makes your equipment safer.
The cost of the policy is important. No coverage will be in place if you cannot pay for it. But the lowest cost policy is not always the best policy. The key is the coverage being in place and paid out when (if) you need it. An insurance company that goes out of business when you have a claim or denies valid claims is providing the same benefit as having no policy. Or worse than having no policy since if that happens you paid good dollars for a bad product.
Among the most used rating standards for insurance companies are AM Best, Standard and Poor's (S&P), and Fitch.
Details, details, details. There are general coverages and specific details written into specific policies. Your policy, not the insurance company's website promises, determines your coverage or lack of coverage. Know the exceptions. Review the policy. Ask questions. Get legal advice, if needed.
While expensive on the front end, if ever needed for a major claim insurance turns out to be one of the best buys you will ever make. Good shopping.
Related articles you might be interested in:
Leasing on with a Carrier vs Your Own Authority