Have you ever test-driven a new car, with the salesperson sitting next to you in the passenger seat urging you to "open it up a little more" or "find out what this thing can really do"? That kind of encouragement might help sell cars, but it's a calculated risk on the part of the salesperson, or genius, or whatever the dealership calls them.
Sure, if you're testing a car from a dealership and an accident occurs, there's a chance that your personal car insurance may be considered responsible, but that's not as common as you might think. Each state has different laws that determine responsibility, says Jeff Willoughby, director of large accounts at Sentry Insurance, a U.S. mutual insurance company.
"The customer's insurance can come into play, depending on state statutes and whether or not [their] coverage is considered primary or the dealership's coverage is considered primary, and that's different across the country," says Willoughby.
Furthermore, Willoughby explains, crashes during test-drives don't happen all that often, though no one really keeps track of the exact numbers as a proportion of test-drives taken.
"There's a lot of test-drives being done at dealerships and for the most part, there's not a ton of accidents, but when an accident occurs, it can be a pretty significant event," says Willoughby. "A collision on the car is normally covered by the company that is handling inventory for the dealership."
Car dealerships are considered niche markets by the insurance company and require specialized insurance, which can come from a few different places. A property and casualty insurance company such as Sentry is able to handle the needs of a business such as a car dealership, but Willoughby points out that car dealerships also can buy insurance through the manufacturer of the car that they sell or through the lender they use to finance their inventory.
Thanks to these specialized types of insurance, a car dealership doesn't have to individually insure every car on the lot. Rather, the cars fall under a blanket policy, which makes things easier since a dealership's inventory changes daily.
"By and large, they buy the coverage on the total inventory," says Willoughby.
So, how much does a dealership pay for coverage on all of its cars? It varies a lot depending on the size of the dealership and whether it's a small business or part of a large dealer network. Willoughby estimates a single-point dealership in an average size town might spend between $40,000 and $60,000 for a year of coverage. A multilocation dealership will spend anywhere from $100,000 up to millions of dollars. This coverage protects all of a dealer's inventory and isn't just for test-drives. So chances are, if you wreck a car on a test-drive, the car dealership and its insurance company probably has it covered.
Driver's License Please!
Since it's a big risk to let just anyone come in off the street and drive a new ride, car dealerships have several best practices to help minimize the potential for problems. You might be annoyed by a salesperson's nosy chitchat, but the salesperson actually is assessing the risk you pose as well as how likely you are to buy a car that day.
Willoughby says it's common for dealerships to photocopy a potential customer's driver's license for their records, just in case anything happens on the test-drive, but that's usually all they request.
"As far as getting an insurance card from [the customer], they don't necessarily ask for that," says Willoughby. Which makes sense, especially if the person is buying their first car.
A dealership's insurance company generally expects the dealership to follow specific procedures during the test-drive as well.
"The salesperson goes with them on the test-drive to control the exposure, and also best practice is there's a predetermined route that the test-drive takes because you want to have a test-drive route that consists primarily, if not solely, of right-hand turns to avoid the extra exposure that exists when you're making left-hand turns," says Willoughby.
Some dealerships allow customers to take cars home overnight, and as you might guess, their insurers aren't exactly fond of this practice. Willoughby notes that if a car is damaged while it was in a customer's care overnight, the scenario becomes a lot more complicated.
A car dealership also has the right to refuse test-drives. Willoughby lays out some common scenarios where the dealership might decline to let a customer test a car:
- The person does not have a driver's license.
- The person appears to be under the influence of drugs or alcohol.
- The car they want to drive is rare or unusual.
- The car they want to drive is very high performance.
So, if you have your eye on that limited edition Mustang or Corvette, just be aware that the sales team is going to be wary of anyone who just wants to go for a joyride.
"That's at the dealership's discretion. Every dealer kind of makes their own call on that," says Willoughby. "Most dealers aren't going to let those specialty cars out of their sight."