It takes a great deal of confidence and a little bit of know-how to become an owner-operator. Ditching the fleet life for a sweet life on your own can be liberating for drivers possessing an autonomous mindset. But traversing the freight landscape solo has its own set of challenges, too.
In fact, being at the helm of your own operation can also be overwhelming for those not quite sure where to start, especially when it comes to insurance.
Jordan Chastain, Reliance Partners’ senior vice president of sales, details the insurance basics that all drivers should know before heading out on their own.
Weigh your truck options
First and foremost, you’ll need a trusty steed. As an owner-operator, you’re responsible for purchasing your own vehicle, which means you’re also on the hook for its maintenance costs, so it’s wise to choose a truck that best fits your needs.
There’s no right or wrong answer as to which big rig to choose. Rather, it’s more a pros-and-cons decision. Take a new truck, for instance. Sure, it’ll have the latest safety features and tech upgrades, in addition to great fuel efficiency and a low breakdown propensity (for now), but keep in mind that the vehicle’s price tag typically reflects on the insurance, too.
Chastain explains that the cost of a newer truck typically means higher premiums. “Most of the time, the newer the truck, the more premium that you’re going to pay. However, you’d definitely get more miles out of a newer truck and with all the technology upgrades and safety features. You can also make the case that older trucks require a lot more maintenance.”
You’ll need the basics
First, it’s important to ask yourself if you’re going to operate alone or perhaps one day start a fleet.
Reliance Partners recommends that those wanting to drive independently look for sole proprietorship when starting the business, as it’ll give them full responsibility over their operation. If you plan on employing other drivers, then you should consider setting up as a corporation or a limited liability company instead.
“New venture insurance is going to be the same insurance as that of most motor carriers — $1 million on your auto liability; that’s really where the majority of your premium is going to come from,” Chastain said. “A standard new venture policy, depending on the state that you’re operating in, will probably be around a minimum of $15,000 to $20,000 maximum per truck for your auto liability. It really depends on your driving record, the state that you’re located in, the age of your equipment and what you’re going to be hauling.”
Owner-operators with their own authority will need auto liability insurance — $750,000 at minimum as required by federal law. It’s common for freight brokers and shippers to require $1 million in coverage, but Reliance Partners states that most insurance providers recommend buying at least $5 million of liability coverage, as anything less may not sufficiently cover the financial consequences of a major accident.
Lenders also require that you purchase physical damage coverage, which is based on the value of your vehicle. The premium is typically no more than 5% of the total insured value of the truck if your driving record is good; otherwise it might be higher. Chastain notes that if your vehicle is worth $100,000, then the premium would be $5,000.
It’s important to also consider general liability insurance in addition to cargo insurance, which is mandatory for all commercial trucks transporting paid cargo. Drivers are required to carry at least $5,000 of cargo insurance, but the amount could be greater depending on the value of your payload.
Gap insurance is also available for expensive vehicles. In a situation where the value of the truck has significantly depreciated at the time of the costly collision, this coverage helps pay the remainder of your loan.
Owner-operators under permanent lease
Owner-operators leased to a motor carrier are usually covered by the company’s auto liability and cargo insurance, but only under dispatch. You’ll have to be cautious when driving on your own time. Simply driving to the truck wash or on your way home can be a risky endeavor without proper coverage.
This is where non-trucking liability insurance comes in handy. This coverage pays for property damage or bodily injury in the event of an accident when the truck or driver is not under dispatch and on personal time. Motor carriers may also require you to purchase occupational accident coverage (OCC/ACC) before leasing on, which may provide coverage for accidental death and dismemberment, medical expenses, and disability in addition to other types of available coverages.
“Depending on their CSA scores and claims, etc., a motor carrier’s liability is normally around a minimum of $6,000 and $20,000 maximum per truck,” Chastain said. “Non-trucking liability is probably going to run you $500 to $600 for the year, so you’re gonna see a big difference in the premiums there.”
Don’t be dismayed by higher rates
New owner-operators will have to earn the trust of their insurance provider. This means that your insurance rates will be higher, so don’t be caught off guard when signing the papers.
Chastain said that new owner-operators are often surprised when the price is around $18,000-20,000 for the year with a $3,000 down payment, paying $1,400 a month. “They’re not expecting it to be that expensive because they’re used to paying $700 monthly for non-trucking liability and physical damage; now you’re paying a grand or more a month.”
“The thing about starting with a fresh slate is that it doesn’t show that you have any experience,” Chastain said, explaining that insurance companies would like to get to know you first before handing you lower rates. “They don’t want to take a risk on a driver that may have a terrible first year with claims.”
The more experience the better
Ultimately, becoming an owner-operator isn’t for everyone. Are you prepared to take on the responsibilities of your entire operation — everything from booking loads to insurance expenses on top of hauling the freight? If that sounds like a daunting task, then you might not be ready to go off on your own just yet.
Chastain argues that successful owner-operators are the ones who have notched many years under their belts driving for or leased on with larger fleets. It’s in these roles where optimistic drivers learn the invaluable skills needed to do the job themselves. In addition, he states that insurance carriers are a little more comfortable with drivers with an extensive, clean background in trucking.
“Drivers with more experience leased onto a motor carrier have a lot more success than those that spend the minimum time possible with a trucking company before starting off on their own,” Chastain said. “They usually don’t understand the X’s and O’s as well as someone that’s had a little more experience.”
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