Motor Trade Insurance Explained: A Guide for New and Small Car Dealers

Last updated 29 September 2026.

If you buy and sell cars, you need insurance that covers you to drive cars that are only passing through your hands. Your own car policy almost certainly won’t do it. This guide explains what motor trade insurance is, road risks versus combined cover, what insurers commonly ask new and part-time traders for, and what to check before a customer takes a test drive. It is written for people starting out or running a small used car business.

This is general guidance based on GOV.UK, legislation and published insurer and broker guides as of September 2026, not legal or insurance advice. Policies differ, so check the policy wording with your insurer or broker before you rely on a detail.

What is motor trade insurance?

Motor trade insurance is a policy for someone who runs a business involving vehicles. Tradex describes it as cover for “companies that deal with their own and any customer’s vehicles” (Tradex: motor trade insurance). Dealers, mechanics, repairers and valeters all buy versions of it.

A private policy covers a named car. A motor trade policy covers the named drivers to drive vehicles that come through the business: your stock, part exchanges on their way to auction, and customers’ cars in your care. The schedule sets out the uses allowed, the drivers covered and the maximum vehicle value.

The legal starting point is the Road Traffic Act 1988. A person must not use a motor vehicle on a road or other public place, or cause or permit anyone else to, unless there is insurance in force for that use (Road Traffic Act 1988, section 143). The “cause or permit” part matters to dealers, because it covers letting a customer or an employee drive your stock.

Why your own car insurance doesn’t cover trade vehicles

A private car policy is normally limited to social, domestic and pleasure use, and brokers are clear that it does not cover motor trade work (ChoiceQuote: motor trade vs private car insurance).

Getting this wrong is expensive. GOV.UK says the police can give you a fixed penalty of £300 and 6 penalty points if you are caught driving a vehicle you are not insured to drive. If the case goes to court you can get an unlimited fine and be disqualified, and the police can seize and in some cases destroy the vehicle (GOV.UK: driving without insurance).

Who needs motor trade insurance?

You need it if your business involves driving vehicles you don’t personally own and insure, including buying and selling cars from home. Our guide to starting a car sales business covers the steps around it, and the legal requirements for running a used car dealership cover the wider rules on being a trader.

Road risks only or combined cover?

Road risks covers the driving. Combined cover includes road risks and adds cover for the business itself. Tradex says road risks suits traders who “have just started out in business, operate from their own home and have not yet employed a team”, while combined suits “larger businesses with premises, including car dealerships” (Tradex: road risk vs combined insurance).

	Road risks only	Combined
Driving stock and customers' cars on the road	Yes, at the level of cover you choose	Yes
Your premises (building and contents)	No	Can be included
Stock and customers' cars parked at your site	No	Can be included
Tools and equipment	No	Can be included
Employers' and public liability	No, buy separately	Can be included
Typically suits	Home-based and part-time traders	Dealers with a forecourt, unit or workshop

Road risks policies come at the same three levels as car insurance: third party only, third party fire and theft, and comprehensive. Road risks is about driving, so cover for stock parked at your premises usually comes from the premises and stock sections of a combined policy. Tradex notes that many traders move from road risks to combined as the business grows.

One point catches people out. On most trade policies, comprehensive cover pays the trade value of a damaged or stolen car, not what you had it advertised for (ChoiceQuote). If you are not sure what that means for your stock, our explainer on CAP clean, retail and trade values sets out the difference.

What a motor trade policy typically covers

A road risks policy typically covers the named drivers to drive vehicles in the business’s care for trade purposes. Depending on the policy, that can include:

• driving stock to and from auctions, preparation and MOTs
• collecting and delivering cars, including customers’ cars
• road testing a car after work on it
• customer test drives, often called demonstration cover
• social, domestic and pleasure use of vehicles the business owns, where the policy includes it
• vehicles driven on your trade plates

Demonstration cover is the one to check first. Crowthorne warns that “test drive cover should never be assumed”: some policies include it, others need it added, and without it your policy may only cover the named traders rather than members of the public (Crowthorne: insurance for a test drive under motor trade cover). Unaccompanied test drives are a further step. Tradex says it is unlikely a motor trade policy includes them as standard, so you need to ask your broker for an extension (Tradex: unaccompanied test drive insurance).

What insurers commonly ask for: proof of trading

Most motor trade insurers want evidence that you are a genuine trader, not someone using a trade policy to insure their own cars cheaply. Plan Insurance lists the kind of evidence it accepts (Plan Insurance: proof of trading for motor trade road risk policies):

• purchase and sale receipts for vehicles, showing contact details, date, price, make, model and registration
• auction house invoices and membership confirmations
• advertising, such as your website or marketplace listings
• business bank account details and company letterhead
• self-assessment tax forms

The same broker sets minimum levels of trading for its policies: 5 vehicle sales or £5,000 turnover for part-time traders, and 10 sales or £10,000 for full-time traders. Treat these as one broker’s thresholds, not an industry rule, and ask what your insurer expects.

Proof is not only asked for at the quote stage. Plan says insurers can ask for it “at any point in a policy term”, usually giving you 7 days to reply, and that failing to provide it can lead to a claim being refused or the policy being cancelled. Keep an invoice for every car you buy and sell, in one place, from day one.

Part-time and home-based traders without premises

You can get motor trade insurance without premises. Road risks policies are aimed at traders who work from home and have not yet taken on staff (Tradex), with your home address declared as the place you run the business. You will usually still need the proof of trading above, and some insurers will only offer road risks, not premises or stock cover, until you have a site.

Tell the insurer honestly how many hours you trade and where the cars are kept overnight, because that is part of the risk they are pricing. Check your council’s rules too before you keep several cars at home. The legal requirements guide covers planning and business registration.

Motor trade insurance for sole traders

Sole traders can buy motor trade insurance in the same way as limited companies. The difference is the evidence. A limited company can point to its Companies House registration, whereas a sole trader usually relies on self-assessment records, a business bank account and a paper trail of invoices. Plan Insurance lists self-assessment tax forms among the proof it accepts.

If a friend or relative will move cars for you, tell your insurer first. Anyone who drives must be covered by the policy.

Under-25s and named drivers

Young traders can get cover, but with fewer insurers and higher prices. Tradex says there is no official minimum age, but most insurers treat under-25s differently, and “many motor trade insurers will flat-out refuse to cover 18 to 21-year-olds”. It also requires drivers to have held a full licence for 12 months, and says some insurers will only offer basic road risks to a very young trader, without premises cover (Tradex: motor trade insurance for young drivers).

Insurers look at your experience in the trade, how long you have been driving and your driving record. Time spent working for a dealer or garage before going it alone can count in your favour.

The same applies to anyone else who drives. Each policy says who can drive, either named drivers only or anyone within stated conditions, so ask for a quote with a young employee on before they start.

Employers’ liability and public liability

Employers’ liability is a legal requirement once you employ someone. GOV.UK says you must get it “as soon as you become an employer”, with at least £5 million of cover from an authorised insurer. You can be fined £2,500 for every day you are not properly insured, and £1,000 for not displaying the certificate where employees can see it. You must also show it to inspectors if they ask (GOV.UK: employers’ liability insurance). You don’t need it if the only people you employ are family members (such as your spouse, a parent, grandparent or sibling), or people based outside England, Scotland and Wales.

Public liability covers claims from customers and other members of the public, such as someone hurt on your forecourt. It is not a legal requirement in most cases (Hiscox: do I need public liability insurance?). Most dealers with a site where customers visit still take it, and clients, local authorities or trade associations may ask to see it. Both types of liability are often included in a combined policy.

What affects the cost of motor trade insurance?

There is no reliable single figure for how much motor trade insurance costs, because a part-time road risks policy and combined cover for a forecourt are very different products. The factors that commonly move the price are:

• the type of cover: road risks only or combined, and third party or comprehensive
• the number of named drivers, their ages, driving records and years in the trade
• the maximum value of any one vehicle you will drive
• whether customers can take unaccompanied test drives
• your premises, how stock is kept overnight and security
• how many cars you hold and the total stock value
• your claims history and any motor trade no claims bonus
• your turnover and whether you trade full or part time

When you budget for a new business, get real quotes for your own circumstances before you commit. Our startup cost calculator has a line for motor trade insurance, so you can see how the premium sits alongside stock, rent and your other monthly costs.

Test drives: checks before a customer drives

Check the customer’s licence before every test drive, and follow whatever your policy’s demonstration section asks for. Crowthorne notes that it is the trader’s responsibility to carry out these checks, and that policies commonly set limits on age, convictions and time since passing the test. Skip them and the drive may fall outside your policy’s conditions.

You can check a licence online with DVLA. The customer creates a check code from their driving licence record, and you enter it with the last 8 characters of their licence number. The service shows the vehicles they can drive and any penalty points or disqualifications. A code lasts 21 days and can only be used once, and GOV.UK warns that it is a criminal offence to get someone’s information without their permission (GOV.UK: check someone’s driving licence information, GOV.UK: view or share your driving licence information).

Keep a record of who drove which car, when, and the checks you made. If you want more test drives booked in the first place, see how to increase test drive bookings from your dealer website.

Trade plates and motor trade insurance

You need motor trade insurance to get trade plates. GOV.UK says you must provide a copy of your motor trade insurance certificate with your application (GOV.UK: apply for a trade licence). Once you have them, any vehicle you drive on trade plates must be insured and roadworthy, with a valid MOT or an exemption, and you can only use the plates for the purposes on your application (GOV.UK: rules for using trade plates).

Trade plates cover tax and registration, not insurance. Your policy still has to cover the driver and the use. Our trade plates guide covers the application and the rules in full.

How to compare motor trade policies

Compare what is covered before you compare prices. Two policies with similar premiums can have very different limits. Questions worth asking your broker or insurer:

1. Is this road risks only, or combined? What level: third party, third party fire and theft, or comprehensive?
2. Who can drive? Named drivers only, or anyone within conditions? What are the age limits?
3. Are customer test drives covered? Accompanied only, or unaccompanied too? What checks must I do?
4. What is the maximum value of any one vehicle, and the total stock value covered?
5. Does comprehensive cover pay trade value or something else?
6. Are customers’ cars in my care covered, on the road and at my premises?
7. What proof of trading do you need, and when can you ask for it?
8. Am I responsible for keeping vehicle details on the Motor Insurance Database up to date? The police and DVLA use the database to enforce motor insurance law (AXA: Motor Insurance Database).

Read the full policy wording and the exclusions before you sign.

Common mistakes

Mistake	What to do instead
Driving stock on your personal car policy	A private policy is normally for social, domestic and pleasure use. Get a motor trade policy before you start buying cars to sell.
Assuming test drives are covered	Check the demonstration section. Unaccompanied drives usually need a specific extension.
Letting a customer drive without a licence check	Do the checks your policy asks for, including a DVLA check code, and keep a record.
No paper trail for the cars you trade	Keep purchase and sale invoices for every car. Insurers can ask for proof of trading mid-term.
Understating hours, stock or where cars are kept	Tell the insurer the truth. Wrong information can lead to a refused claim or a cancelled policy.
Taking on staff without employers' liability	Put employers' liability in place before their first day and display the certificate.

How Haswent helps

Haswent helps with the planning around your insurance. The startup cost calculator lets you add your insurance quote to your monthly costs, and the diary lets you book test drives, viewings and handovers in private or shared calendars, so you can see who is taking which car out and when.

Sources

• Road Traffic Act 1988, section 143: users of motor vehicles to be insured
• GOV.UK: driving without insurance
• GOV.UK: employers' liability insurance
• GOV.UK: apply for a trade licence
• GOV.UK: rules for using trade plates
• GOV.UK: check someone's driving licence information
• GOV.UK: view or share your driving licence information
• Tradex: road risk vs combined insurance
• Tradex: unaccompanied test drive insurance
• Tradex: motor trade insurance for young drivers
• Plan Insurance: what counts as proof of trading for motor trade road risk policies
• Crowthorne: insurance for a test drive under motor trade cover
• ChoiceQuote: how motor trade insurance differs from private car insurance
• Hiscox: do I need public liability insurance?
• AXA: the Motor Insurance Database

Frequently asked questions