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Types of motor trade insurance: What to know

5 minutes

Not all motor traders are created equal. You simply can’t compare a large dealership with franchises all over the UK to a part-time mechanic who provides emergency breakdown services over the weekend. Insurers know this. That’s why there are different types of motor trade insurance so that you can tailor-make a policy that suits your unique needs.

Here, we explore the three primary options available to you, as well as some add-ons you might want to consider, depending on your business. 

Types of motor trade insurance

Most motor trade insurance policies fall into three categories: road risk insurance, liability insurance, and combined insurance. 

Road risk insurance

Almost all motor trade insurance policies include road risk insurance. Road risk cover allows you and your employees to drive any vehicle associated with your business legally on public roads. This means that you’re covered if:

  • You need to test drive a customer’s car after you’ve completed some repairs
  • You need to move a newly bought vehicle from an auction to your showroom
  • You need to drive a customer’s car to them after valeting it

The policy operates on a trade plate basis, which means that you don’t need to notify your insurer every time you handle a different vehicle. Instead, your policy covers any vehicle that’s temporarily in your possession for business purposes. It’s easy to see how essential this form of cover is if you’re a dealership or garage that handles several vehicles a day. 

If you’re involved in buying, selling, repairing, or servicing cars in any way, you are legally required to have road risk cover in place. You don’t necessarily need it if you don’t drive cars as part of your business — for example, if you deal in parts — but even so, most motor traders choose to have road risk insurance as a precaution. You just never know if you’re going to need to move a vehicle unexpectedly.

You can choose to buy this road risk insurance on its own. If you do, you’ll likely pay less than you will for a combined policy, but you won’t be as comprehensively insured. Talk to your insurer or an experienced broker about how you configure your business before making a decision. 

Liability insurance

Liability insurance helps to protect your business against claims from customers, employees, and members of the public. It integrates different types of liability cover, such as public liability, employers’ liability, product liability, and professional indemnity insurance:

  • Public liability insurance: This covers claims from members of the public for injury or property damage caused by your business activities. For motor traders, this might include a customer slipping on an oil spill in your garage or someone accidentally being injured by equipment on your premises.
  • Employers’ liability insurance: If you employ people, whether they work for you full time, part time, temporarily, or on a contract or volunteer basis, employers’ liability insurance is a legal requirement. It covers you if your employees experience any injuries or illness while they’re at work, including on or off-site accidents and work-related health issues that might develop over time. 
  • Product liability insurance: Product liability insurance covers claims related to products you’ve sold or work you’ve completed. It will come into effect if parts you’ve sold turn out to be faulty, or if any repairs or modifications you complete fail and cause an accident. These are the kinds of problems that can keep mechanics up at night. With product liability insurance in place, you’re properly protected. 
  • Professional indemnity insurance: Also known as PI, professional indemnity insurance covers the legal costs of someone taking you to court because they weren’t happy with your work, or because you provided technical advice that had a negative physical or financial impact. It typically also covers any damages or settlements that are agreed to.

There may be other types of liability insurance you wish to include in your policy, such as sales and service indemnity, or care, custody and control liability. When you get a quote, discuss your business activities in detail with your insurer or broker. They’ll be able to advise you on the liability coverage you should consider.

Read more: Types of business insurance you should know about

Combined insurance policy

As the name suggests, a combined insurance policy bundles both road risk and liability cover together, and can include a few optional add-ons, too. It’s the most comprehensive form of coverage for motor traders.

Opting for this type of insurance has several advantages, including:

  • It’s more convenient: Having everything under one policy is often easier to manage than multiple policies.
  • It’s more cost-effective: You’re likely to find a more affordable policy if you choose to group your policies together rather than buy them separately.
  • It’s easier to coordinate claims: Since you won’t be caught up in disputes between different insurers, it’s often easier to manage the claims process.
  • You’ll have fewer gaps: Because it’s more comprehensive, a combined policy means there are fewer gaps in your coverage. 

Smaller operations or mobile mechanics might find a road risk-only policy (potentially with one or two add-ons) more suitable and cost-effective than a combined policy. Combined policies are typically more suitable for:

  • Larger motor trade businesses that operate from their own premises
  • Car dealerships
  • Garages with expensive equipment
  • Businesses with significant stock value
  • Operations that offer multiple services, such as sales, repairs, and modifications

However, what you choose really depends on your appetite for risk and your personal needs. Insurers have deliberately created flexible motor trade policies so that you can customise your plan accordingly.

What other add-ons should I include as part of my motor trade insurance?

If you run a large or complex business, or if you offer fairly niche services, it’s worth looking into the additional coverage your insurer provides. Some of your options include:

  • Breakdown cover: Provides recovery services for vehicles used in your motor trade business.
  • Business premises cover: Protects the space in which you work, whether it’s a large commercial property or your garage.
  • Classic motor trade insurance: Covers you if you deal with classic vehicles.
  • Demonstration cover: Allows customers to test drive vehicles under your insurance. This is essential if you deal in new or used cars.
  • Goods in transit cover: Protects your tools and equipment if you regularly travel with them.
  • Key loss cover: Covers the cost of replacing keys and locks for vehicles in your care.
  • Legal expenses cover: Protects you if you are involved in an accident that wasn’t your fault by covering the legal costs of taking action against the person responsible.
  • Multiple premises cover: Extends your policy to cover additional business locations.
  • New vehicle replacement cover: Replaces brand-new vehicles with equivalent new models if they’re written off within a certain period.
  • SME motor trade insurance: Covers small motor trade businesses with specific coverage. 
  • Tools cover: Protects your tools and equipment against theft or damage. While some policies only protect tools while they’re on your premises, others will protect them while they’re in transit too. If your policy doesn’t protect your tools while you’re on the road, you might need goods in transit cover, listed above.
  • Windscreen cover: Covers the repair or replacement of vehicle windscreens without affecting your no-claims bonus.

Quickfire summary

There are three primary types of motor trade insurance: road risk insurance, liability insurance, and combined insurance.

Road risk insurance forms the foundation of most motor trade insurance policies and is required by almost all individuals and businesses working in this space. Liability protects you against any claims made by your employees, your customers, or members of the public. And combined insurance policies bundle these options together — together with any extra add-ons — to give you fully comprehensive coverage.

Whatever your needs, chat to the team at Howden about insuring your motor trade business. We’ll carefully assess your requirements and develop a tailored plan that provides the right coverage at the right price. Contact us for a quote today.

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