Most of the larger trucking companies purchase their liability and cargo truck insurance based on mileage or gross receipts. The insurance company sets rates based on expected mileage or income for the policy year. Typically, each month, the insurance company requires the insured to report actual mileage or income, multiply that amount by the agreed rate, enclose a check, and mail it to the appropriate party. Then, during the year-end audit of the policy, the insurance company uses the actual mileage and revenue from the trucking company to “adjust” the truck insurance premium payments.

An overview of mileage and gross receipts options

If the trucking company chooses to pay truck insurance premiums based on mileage, then the insurance company sets a rate based on the miles the trucking company expects to generate during the year.

If the trucking company pays premiums based on gross receipts (or revenue), then the insurance company sets a rate based on the gross receipts the trucking company expects the truck to generate during the year.

An example

For example, if a truck averages $1.50 per mile and you expect to drive 120,000 miles per year, that truck’s annual gross receipts would be $180,000. Suppose a truck insurance company offers to insure that truck for $4,500 per year. .

• If truck insurance were based on mileage, premiums would be calculated at $3.75 per 100 miles. (120,000 / 100 = 1,200 X $3.75 = $4,500)
• If truck insurance were placed on a gross receipts basis, the rate would be $2.50 per $100 of gross receipts. ($180,000 / 100 = $1800 X $2.50 = $4,500)

The trucking company could end up paying about $4,500 in trucking insurance premiums, depending on actual mileage and gross receipts determined by the policy year-end audit.

Keep in mind that we chose the 120,000 miles per year, the $1.50 per mile, and the $4,500 per year per truck simply because they are easy numbers to handle. That in no way indicates that those are “average” numbers. And again for simplicity, our example is for a truck. I don’t know of any insurance company that will write a policy based on mileage or income for a truck. We’re just trying to keep it simple.

How Shipping Rate Increases May Affect Your Gross Receipt-Based Truck Insurance Premiums

If your trucking company is insured on a gross receipts basis and you are lucky enough to get a rate increase with a carrier, you must share that increase with the insurance company. This is why.

Take the example above. Suppose the truck is assigned to a route that pays it $1.50 per mile both ways, and those trips generate 120,000 miles. That would be $180,000 per year. As the example above shows, your truck insurance premium would be set at $4,500.

But what if you could suddenly get an increase of $1.80 per mile both ways? This increases the revenue from that truck to $216,000, a 20% increase in revenue. And that means your insurance premium increased by the same percentage. Instead of $4,500 a year for that truck, you now have to pay $5,400.

However, if you had been insured for mileage, your insurance premium would have stayed the same. Your miles stayed the same 120,000. The number of miles did not increase. Just the amount of income.

One Final Tip About Fuel Surcharges

Most truck insurance policies include a fuel surcharge as part of a business’s “gross receipts.” However, some insurance companies will waive fuel surcharges if agreed in advance. You must ensure that it is expressly understood in writing how your insurance company will view the fuel surcharge. Don’t wait until the end-of-year policy audits to find out. Note: Fuel surcharge is not an issue with mileage-based policies.

Conclusion

Before you commit to a truck insurance premium calculation based on mileage or gross receipts, make sure you’ve done the math and considered all options. A good, competent trucking insurance agent will explain them to you and make sure you make the right decision for your trucking operation.