Physical damage insurance is vital, but paying for it needn’t smash your budget. Here are 10 ways to steer clear of a head-on financial collision without assuming too much risk.
Last in a series that examines how you can cut costs in five essential areas.
“Insurance is hard to understand, and trucking insurance in particular is really complicated,” says Michael Lawrence, small fleet manager for InsureMyRig.com, a division of Roemer Insurance.
Easy to understand, however, is the need for coverage in the event your rig is damaged or totaled. Also easy to understand is the need to spend as little on that coverage as possible – keeping in mind that skimping on insurance is, in Lawrence’s words, “bad value for your money.”
Here are ways to minimize your physical damage costs and maximize your peace of mind.
- Know your policy
Know what’s covered, what isn’t and under what circumstances. If you want extras covered – anything from tarps and chains to satellite radios and the fuel spilled in an accident – pay a little extra for them.
Many owner-operators buy a fire/theft/CAC policy (CAC being combined additional coverage), says Rick Gallegos, president of Transport Insurance in Sylvania, Ohio. If it’s not listed on the policy, a CAC doesn’t cover it.
A comprehensive/collision policy, on the other hand, lists only the things not covered, such as rodent damage or normal wear and tear. This makes a comprehensive policy your best buy, Gallegos says. It offers “much broader coverage at very little cost.”
- Shop around
Shopping for insurance is a good idea for all owner-operators, but leased operators should begin their shopping with the fleet program, which often has a significant discount on premiums, Lawrence says. The convenience of having the premiums deducted from settlement checks is another bonus.
Truckers looking for insurance tailored to a specific rig or application, however, should shop independently. “Your fleet is only going to have one take-it-or-leave-it thing,” Lawrence says.
Even if your fleet offers reasonably priced physical damage insurance, consider buying it on your own. The benefits include portability, faster response and greater control.
If your fleet bundles physical damage insurance along with liability and cargo insurance, “it makes sense to look at un-bundling those services,” says Tom Pollert, vice president of fleet sales for Flying J Insurance Services. By itself, physical damage tends to be cheaper because it represents a much smaller obligation to an insurer than, say, liability insurance, Pollert says. It also tends to require a relatively small up-front payment, which helps an owner-operator’s cash flow, Pollert says.
“Insurance companies are getting more competitive for these individual customers,” Lawrence says. Increasingly common are beneficial “throw-ins” such as a “diminishing deductible” that drops by 25 percent for every year without a covered loss. Some insurance companies also are contracting with tow-truck operations and service facilities to greatly speed the repair paperwork for all concerned, Lawrence says.
You can check out any insurance company for free at this site, the website of A.M. Best, which ranks each insurer according to its financial health. Sticking with A-rated insurers is the best policy, Lawrence says, because they offer better coverage and faster turnarounds on claims.
Make sure the insurer and the agent specialize in trucking, Lawrence says. One way to do that is to ask how much of the agency’s total premium comes from trucking.
- Impress your insurer
Demonstrate that you’re a safe, stable and responsible business person with a desire to keep your claims to a minimum.
“The top insurance companies want to see as clean a motor vehicle record as they can, newer equipment, and years of experience, especially with the same carrier,” Lawrence says.
Share your detailed maintenance and service plan, especially if you’re driving older equipment.
- Use deductibles wisely
A deductible of $1,000 means you agree to pay the first $1,000 of expenses on a claim before insurance kicks in.
“The higher the deductible, the lower the physical damage premium,” says Brian Hershberger, account executive at ONB Insurance Group in Evansville, Ind. “Owner-operators should consider higher deductibles, but only if they have the resources to pay the deductible should they have a physical damage loss.”
Shortsighted owner-operators sometimes put their deductibles sky-high just to keep their premiums down, but a high deductible is no bargain if a big out-of-pocket expense puts you out of business. Yet owner-operators sometimes make their deductibles so low that they’re paying more in premiums than they would to make the occasional trivial out-of-pocket repair.
The best strategy is to ask your insurance agent for a range of prices at various deductibles, low to high, then decide which one you best can live with, Hershberger says.
If the deductible in a fleet policy is too high for comfort, you can buy insurance that will pay that deductible for you. Such “deductible buy-back” insurance generally is cheap, maybe $120 to $180 a year.
Another way to keep deductibles down is to “make sure that there is only one deductible per occurrence,” Gallegos says. Some owner-operators find out too late they purchased a policy with three separate deductibles: truck, trailer and cargo.
- Mind the gap
The book value of your truck is the most you’ll get from a damage claim, but that may not be enough to pay off a totaled rig. You’re “upside-down,” in insurance terms, when “you owe more than the truck’s current value,” Lawrence says.
If you’re driving a new truck or a used truck no more than five or six years old, you should buy “gap insurance” to cover the difference between the book value and the amount you owe. For example, if your truck’s book value is $30,000, but you have a loan balance of $50,000, you’d be short $20,000 to pay off the loan if the truck were totaled. Gap coverage would make up the $20,000 shortfall. “We automatically include gap on all our physical damage policies,” Gallegos says.
- Don’t insure too much
As your equipment depreciates, let your insurer know so that your premiums can be trimmed accordingly. “Doing it annually is a good benchmark, for tax purposes if nothing else,” Lawrence says.
“Owner-operators are over-buying insurance all over the place, and they’ll never get it back,” Gallegos says. “They don’t realize that the minute they took title, that truck lost $20,000 in value.”
Keep in mind, too, that sometimes your coverage needs to increase – for example, if you’ve upgraded your engine or sleeper.
Other common forms of over-insurance include duplicate policies, such as a personal policy that covers the same ground as a fleet policy.
Application is another consideration. If you’re running a local, dedicated route on uncongested roads, you need less insurance than someone running through major cities all over the country.
- Watch those lumpers
Damage often is done to trailers during loading or unloading, but truckers too often don’t notice it in time to make a claim. At the dock, keep a careful eye not just on your customer’s cargo, but on your own property.
- Drive safely
“The biggest thing an owner-operator can do is slow down,” Lawrence says. The better your driving record – including your driving record in personal vehicles – the cheaper your insurance will be.
“A trucker with more than four tickets and more than one or two at-fault accidents may be uninsurable,” Lawrence says.
- Plan ahead
Insurance is a fixed expense, one you should budget a year ahead. Skipping insurance payments is a poor way to save money. If your insurance lapses, you’ll pay the penalty for years to come in the form of higher premiums – assuming you can even find an insurer.
- Put an agent on your team
An agent who knows the ins and outs of owner-operator insurance is a valuable partner whom you should consult regularly, Lawrence says.
If you have an accident, report it to your insurer immediately. Make it your first call, after notifying 911. But don’t call your insurer only in an emergency. Let your agent know when anything changes: your equipment, your route, your driving partner. Call whenever you’re considering hauling something unusual: a reefer load, for example, if you’re typically a dry-van hauler.
No matter how expert your advice, understanding physical damage insurance is ultimately your responsibility, just like tracking your cost per mile and collecting the settlements due you. “Keep educating yourself,” Lawrence says. Find out how physical damage insurance works, and make it work for you.
PHYSICAL DAMAGE INSURANCE PREMIUM BENCHMARKS
- $215 a month
- 2 cents a mile
In 2005, the average client of American Truck Business Services, which handles the books for 30,000 owner-operators, ran 123,880 miles and paid $2,579 in premiums for physical damage insurance. That’s about $215 a month, or 2 cents a mile.
If you’re paying much more than that, and you’re not driving a brand-new truck or working in a high-risk application such as hazmat hauling, talk to a trucking-insurance professional.
WHY A POLICY WON’T BUY ‘A NEW TRUCK’
The most important thing to understand about a physical damage policy, experts say, is that it will pay no more than the book value of the equipment at the time of an accident.
In other words, getting “a new truck” from your insurance company out of a damage claim is “almost never going to happen,” even if your present truck is totaled, says Michael Lawrence of InsureMyRig.com.
The insurer’s preference is to go the cheapest route, which usually is repairing the truck. At best, you’ll get enough to buy another truck of the same age and mileage.
Physical damage policies, explains Rick Gallegos of Transport Insurance, are based on “stated value.” The owner-operator states the value of the truck, and the premium is calculated accordingly. The annual premium on a truck with a stated value of $85,000, for example, might be 2.5 percent of that value, or $2,125.
If the truck is totaled, however, most policies will calculate the payout not on the originally stated value but on the “actual cash value,” meaning the market value at the time of the loss. The stated value will be paid only when that is less than the actual cash value – when, for example, the owner-operator low-balled his stated value to keep premiums down.
Brian Hershberger of ONB Insurance Group offers an example. If the stated amount of a totaled truck is $50,000, but the actual cash value is $40,000, the insurer will pay only $40,000. If the same totaled truck had an actual cash value of $60,000, the insurer would pay only the stated amount, $50,000.
Not all insurance agents are qualified to advise owner-operators on a truck’s worth, Lawrence points out. Consult a dealer, look it up in the Truck Blue Book, or get it professionally appraised, he advises.