Most California dealers need three things: their DMV surety bond (which isn't insurance), liability coverage for the business and for driving inventory, and physical-damage coverage for the cars on the lot. The usual policies are garage liability, dealer's open lot coverage for inventory, and, if you hold customers' cars, garagekeepers. Premiums depend mostly on the value of your inventory and your location. Many small dealers pay roughly $200 to $500 a month, and often more.
Educational information only. This article is not legal, insurance or financial advice. California Dealer Academy doesn't sell insurance. Talk to a licensed insurance agent about your coverage.
In this article
- The bond is not insurance
- The coverages dealers carry
- Driving inventory on dealer plates
- How premiums are set
- Who may ask for proof of insurance
- Frequently asked questions
The bond is not insurance
From experience (Garrett Eddings, professional opinion): The bond is non-negotiable, but people confuse it with some kind of liability insurance. All the bond does is make sure that if the dealer can't pay their bills, defaults or defrauds somebody, there's a set amount of money the public, or anybody you do business with, can go after to claim restitution for their loss.
That matches the law. Under Vehicle Code §11711, a person can recover on a dealer's bond for fraud or fraudulent representation, for the dealer's violation of the Vehicle Code's registration and title rules, or for not being paid for a vehicle sold to the dealer, up to the value of the vehicle. The bond protects your customers and the state. It doesn't protect you, your inventory or your business.
| Dealer surety bond | Dealer insurance | |
|---|---|---|
| Required by | DMV, for the license ($50,000, or $10,000 for small wholesalers) | Not a DMV license requirement, but needed to drive and protect inventory, and often required by landlords and auctions |
| Protects | Your customers and the state | You and your business |
| If a claim is paid | The surety can come to you to repay it | The insurer pays, subject to your deductible |
| Learn more | Bond and insurance guide · What is a dealer bond? | This page |
The coverages dealers carry
| Coverage | What it covers | Who needs it |
|---|---|---|
| Garage liability | A general liability policy built for auto businesses: injuries to customers and damage to their property (other than vehicles), plus legal defense | Nearly every dealer with an office or lot |
| Auto liability for inventory | Injuries and damage when you or a customer drives an inventory car, including on dealer plates. Often included in a dealer garage policy | Anyone driving inventory |
| Dealer's open lot (dealer physical damage) | Your inventory against theft, vandalism, weather, fire and collision | Any dealer holding cars |
| Garagekeepers | Customers' vehicles while they're in your care, such as storage, service or a test drive of a trade-in | Dealers who hold or service customers' cars |
| Workers' compensation | Employee injuries. Required by California law once you have employees | Dealers with employees |
From experience (Garrett Eddings, professional opinion): I don't write insurance, so this is purely educational, but this is the way it typically goes. The dealer's garage policy is an interesting one, because it's a mix of general liability and auto insurance coverage and acts more like an umbrella policy. Talk to a licensed insurance agent to make sure you understand the benefits.
Insurers combine and name these coverages differently. Ask your agent which ones your policy includes, and get each one in writing.
Driving inventory on dealer plates
California requires liability insurance for vehicles driven on public roads. Since January 1, 2025, the minimum limits are $30,000 per person and $60,000 per accident for bodily injury, and $15,000 for property damage (Senate Bill 1107). Those minimums apply to cars you drive on dealer plates too. Make sure your policy covers inventory, test drives by customers (allowed for up to 7 days under 13 CCR §201.00), and anyone else who drives your cars. See Can you drive a car with dealer plates?
How premiums are set
From experience (Garrett Eddings, professional opinion): It's typically based on your lot coverage. Not "I've got a Mercedes and a Kia," but the average total value of the cars on your lot: say $50,000 to $100,000. Then the insurer looks at your area, assesses the risk and the potential loss, and sets a monthly amount from there. On average you're probably looking at $200 to $500 a month. It can be more, and often it is. You really have to back into the number and make sure you have the resources for it.
| What drives your premium | Why |
|---|---|
| Inventory value on the lot | The insurer's maximum loss on physical damage |
| Location | Theft, weather and claim rates where your cars sit |
| Who drives your cars | Number of drivers, their records, and customer test drives |
| Coverage limits and deductibles | Higher limits cost more; higher deductibles cost less |
| Claims history | Prior claims raise rates |
Budget for insurance before you open: startup budget calculator · dealer license cost.
Who may ask for proof of insurance
- Auctions: many ask for proof of insurance in your dealer packet, along with your license, seller's permit, bond information and W-9.
- Landlords: commercial leases usually require liability coverage and name the landlord as additional insured.
- Lenders: floor plan lenders typically require physical-damage coverage on financed inventory.
Frequently asked questions
Is a dealer bond the same as insurance?
No. The surety bond, required by DMV, lets customers and the state recover losses from fraud or certain violations under Vehicle Code §11711. Insurance protects you and your business.
What insurance does a used car dealer need in California?
Typically garage liability, auto liability for driving inventory, dealer's open lot coverage for physical damage to inventory, garagekeepers if you hold customers' cars, and workers' compensation once you have employees.
How much does dealer insurance cost?
It depends on your inventory value, location, drivers and limits. Many small dealers pay roughly $200 to $500 a month, and often more. Get quotes from a licensed agent who writes dealer policies.
Does a wholesale dealer need insurance?
California doesn't make it a condition of the dealer license, but you need liability coverage to drive cars, auctions often ask for proof of insurance, and your inventory is unprotected without physical-damage coverage.
Related questions
- How much does a $50,000 dealer bond cost?
- How do you file a claim against a car dealer bond?
- Can you drive a car with dealer plates?
- Back to the California Dealer License FAQ
Next step: Bond and insurance guide · Start the 6-hour course for $99
Resources
- California Vehicle Code §11711, claims on dealer bonds (Opens in new window)
- State Farm newsroom: California's new auto liability minimums (SB 1107) (Opens in new window)
- Insureon: garage liability vs garagekeepers (Opens in new window)
- 13 CCR §201.00, dealer plate use (Opens in new window)
Sources: Vehicle Code §11711 (Opens in new window) · SB 1107 limits, effective Jan 1, 2025 (State Farm newsroom) (Opens in new window) · Insureon coverage definitions (Opens in new window) (updated May 22, 2024) · premium range from instructor experience. Verified 2026-10-16.
This article is for educational purposes only and is not legal, insurance or financial advice. California Dealer Academy doesn't sell or broker insurance. Coverage names, terms and prices vary by insurer; consult a licensed insurance agent. Premium figures are one instructor's experience, not quotes.