I found out that many owner operators who want to lease with us, don’t know how different types of insurance coverage work. There are four main types of insurance that trucking companies and owner operators should be familiar with.
1. Liability Insurance is the most important from a legal standpoint. Without it, a trucking company would not be authorized to haul freight on public highways, making the company MC (motor carrier number) unusable.
This type of insurance, as the name implies, covers liability in a potential accident. When drivers with bad records apply for work, it is this type of insurance that prohibits the company from hiring them. From their standpoint, putting unsafe drivers in the truck is too big of a liability and the risk of potential accidents with such drivers is too high. Once denied coverage it is illegal to put these unapproved drivers behind the wheel.
Liability insurance covers only the accidents that happen under dispatch. That means that the driver is either driving empty towards a pick up, or is loaded and going towards the delivery. Little trips, such as from the truck stop to a nearby store while waiting for a load, are not covered under auto-liability insurance.
The price varies among carriers, but for the most part starts at $500 per month and goes up, depending on the safety profile of the company. We, at Logiflex, implemented eLogs 2 years ago, which resulted in a significant revenue cut (you know paper logs are more “elastic”), but our safety scores improved dramatically and our claims decreased. I will get into more detail about the pros and cons of eLogs in a future post.
In a nutshell, when it comes to liability insurance,the safer the company the lower the premium.
Trucking companies that are mostly owner operated have higher insurance premiums, because it is really difficult to control their driving habits.
2. Physical Damage covers the damages on the insured equipment. If the bobtail is insured, but the trailer is not, in a potential accident the insurance company will pay only for the bobtail and deny the claim for the trailer.
It is calculated as percentage of the value for which the equipment is insured. The formula is as follows: truck value x (policy percentage) / 12 = monthly physical damage payment. If we put in some numbers it would look like this: truck valued for $50,000 with insurance rate of 3%, in the formula, we get 50,000 x 0.03 / 12 = $125 monthly payment. Sometimes you can bargain a lower percentage and get into an insurance plan where you would pay 25% upfront and the rest of the amount will be divided into 9 equal payments with the last three months not paying anything.
Some drivers are tempted to insure their equipment for a price higher than the actual value, so in case of a total loss accident they get more money than the truck is worth. Don’t do that!!! Insurance companies would only pay for the market value of the equipment.(You know when something happens with the batteries and the truck burns down). On the other hand, if the truck is insured below market value the insurance company will only use the reported value amount instead the actual market value amount.
3. Cargo Coverage – as the name implies, this type of insurance covers the cargo that is transported in the trailer. It is usually very cheap – about $50-100 a month. If you are an owner operator leased to Chicagoland carrier, most likely you have heard that you are charged $700 “cargo” insurance per month(or $170 or so per week). This is actually combined Cargo and Liability Insurance, but everybody calls it “the cargo insurance”.
4. Bobtail Liability – when owner operators purchase physical damage insurance, they are also asked to add bobtail liability coverage. It usually costs just a few dollars per month. It covers potential accidents when the driver is using the truck as a personal vehicle – driving bobtail to and from the repair shop, buying groceries, etc.
Many trucking companies would require owner operators to show proof of such coverage before leasing with them. This way carriers protect their liability policy from potential claims that would happen during non-dispatched driving.
These 4 types are associated with the equipment alone. There are a couple more different policies to address that relate to the people working in the industry. I will explain them in a different blog.