What Kind of Business Insurance Do Auto Repair Shops Need?

Auto repair shop insurance packages should include various types of liability coverage to cover the mechanic in case they damage the customer’s car or if a customer somehow suffers an injury while inside the body shop. Other types of essential coverage include workers’ compensation insurance to cover employee workplace injuries and commercial property insurance to insure the shop’s tools and equipment.

Whether you're starting a new auto shop or you’re a seasoned pro, find everything you need about mechanic business insurance and how to get covered.

Key Takeaways Auto shop professionals can buy a business owners policy (BOP) to lump general liability, business property and business income insurance into a single package. Garage keepers liability insurance is a must, as it will cover damages to a customer’s car while it is in your care. Business insurance for car repair shops varies in cost depending on your provider's rates, how many locations are being insured, your claims history and the types of coverage on your policy. The cost of workers' compensation ranges from $375 to $1,400 per employee per year and $750 to $2,500 per year for commercial auto insurance.

Is Insurance Required To Operate an Auto Repair Shop?

Workers' compensation and commercial auto insurance are the only two insurance types typically required by law for auto repair shops. Even then, there are caveats. Specifically, workers' compensation insurance is only required if your auto shop has employees. Similarly, commercial auto insurance is mandated if you have company vehicles. We'll expand on these more below.

What Types of Insurance Do Auto Repair Shops Need?

As promised, we've provided a list of auto repair business insurance types so you can start choosing the best coverage for your company.

General Liability Insurance

General liability offers three types of coverage in case you do something wrong; medical costs, property damage and personal/advertising injury. If a vehicle lift accidentally drops a Chevy Duramax and breaks a client's foot and phone, your general liability will cover the client's damages. Your advertising injury coverage will also protect you if a competing auto repair business sues you for posting false statements about them on your website.

In general, all repair shops should have general liability insurance since it protects against several types of liability risks.

Commercial Property Insurance

Auto repair shop insurance should include commercial property coverage to ensure your place of business and equipment are covered if they are lost due to theft, fire or some other covered peril. Suppose a hail storm breaks through the security gates of your garage, allowing water to seep in and damage your power tools and winches. In that case, you can breathe knowing everything would be repaired or replaced up to your policy’s limits after paying your plan’s deductible.

Tools and Equipment Insurance

Tools and equipment insurance covers mobile pieces of equipment, such as multimeters, jacks and jack stands, portable jump starters and coveralls, whether owned by you or borrowed. This coverage differs from commercial property in that it limits protection to the tools and equipment of your trade and excludes your office space and any furniture therein. And unlike commercial property insurance, tools and equipment coverage will apply to equipment that is lost or breaks due to employee negligence.

It’s important to note that tools and equipment insurance also applies to tools left at a job site. Meanwhile, commercial property generally only covers business assets at your primary office or warehouse.

Business Income Insurance

Business income insurance can help cover lost income and temporary relocation expenses if your auto shop business needs to close due to a covered peril. For instance, if a fire burns down your garage, business interruption will cover lost revenue and even temporary relocation costs until your main place of business is repaired and can reopen.

Business Owners Policy (BOP)

A BOP is a wonderful business insurance plan that bundles general liability, business property and business income coverage into a single and often more affordable package. BOPs are perfect for new businesses looking for convenient and inexpensive coverage.

Professional Liability Insurance

Professional liability insurance covers businesses against claims of negligence or errors in professional services. So, if a mechanic accidentally disconnects the anti-lock braking system after working on a car, causing the driver to crash, the mechanic’s legal defense costs will be covered should the client sue.

Workers' Compensation Insurance

Workers' compensation is usually required if a business has employees. It provides medical benefits and wage replacement to employees who have fallen ill or become injured due to their work. For instance, an employee who slips on an oil slick at the garage and hurts themselves will have their medical treatment covered and have their income supplemented while they recover.

Commercial Auto Insurance

Commercial auto insurance is required in most states if company-owned vehicles operate on public roads, such as mobile mechanics driving to their client's residences. Coverage includes damage to your vehicle and others, as well as medical coverage for you, your passengers and anyone injured in an accident you cause.

Garage Keepers Liability Insurance

Garage keepers liability insurance covers theft, collision, vandalism and severe weather that damages a vehicle in your care. You will also have coverage if a client's possessions (e.g., bags, phone chargers, etc.) go missing from their car while their vehicle is at your shop.

Consider the fact that a car will stay at a repair business for an average of 12 days.^[1] This is plenty of time for an accident to occur and your business can be held liable for any accidents and losses to the vehicle during this time.

Additional Coverages Auto Repair Shops Should Consider

Below are extra types of business insurance for auto repair shop professionals worth considering:

• Equipment breakdown insurance: Covers repair or replacement of gear due to mechanical failure, operator error, motor burnout, electrical short or power surges. Also includes coverage for lost income if the broken equipment forces the business to close.
• Cyber insurance: Covers forensic investigations, legal fees and crisis management expenses caused by a data breach or other cyber attack — ideal for auto repair businesses that store client data online.
• Crime insurance: Covers monetary assets against employee theft and fraud, computer fraud and funds transfer fraud.
• Employee benefits liability insurance: A form of errors and omissions (E&O) insurance that protects employers against negligence claims regarding an employee’s compensation package.

How Much Does Insurance Cost for an Auto Repair Shop?

Auto mechanic insurance costs vary depending on your provider's rates, how many locations are being insured, your claims history and the types of coverage on your policy. The more insurance you have, the more you'll pay.

For instance, a business owners policy generally costs $350 to $2,500 per year. If you add workers' compensation insurance, your premium may increase by $375 to $1,400 per employee yearly. Since you'll likely need commercial auto coverage, expect your annual premium to rise by another $750 to $2,500.^[2]

How To Get Auto Repair Shop Insurance for Your Business

Getting insurance for your business involves several steps. Here's a general guide to help you get insurance for auto repair shops:

1. Consider any insurance requirements as well as potential risks you may face while operating an auto shop.
2. Seek recommendations from colleagues, industry associations or online resources to find reputable insurers with experience in your industry.
3. Gather multiple quotes or use an insurance marketplace tool like SmartFinancial. You can answer a few basic questions about your business (years in business, number of employees, number of business vehicles, etc.) and you can get matched with a policy in minutes.
4. Add any coverage you feel your business needs and make sure the limits are adequate for your operation.
5. Make your first payment and be sure to obtain a certificate of insurance (COI) for your records. You'll likely be required to have a COI in your vehicle if you have a company car.
6. Update your coverage to ensure adequate protection as your auto repair shop grows or changes.