Glossary · Insurance & Risk
Physical Damage.
Coverage on the carrier's own truck and trailer against collision, theft, fire, vandalism, and other damage; typically required by equipment lenders.
What it is
Physical damage is first-party coverage on the carrier's own equipment — tractor, trailer, and attached components. It splits into two main parts. Comprehensive covers theft, fire, vandalism, weather, and collision with an animal. Collision covers vehicle-on-vehicle and single-vehicle accidents. Together, the two parts replace or repair the truck after most damage events, subject to deductible and policy limits.
Deductibles range from $1,000 to $10,000; a higher deductible lowers the premium but increases out-of-pocket exposure on each claim. Coverage value typically matches actual cash value (ACV, with depreciation applied) or stated value (the amount set at policy inception). Gap insurance can cover the difference between ACV and the remaining loan balance — important for newer trucks where depreciation outpaces principal paydown in the first 18–24 months. Lenders almost always require physical damage as a condition of equipment financing, and they list themselves as loss payee on the dec page so any claim check is issued jointly to lender and carrier.
Why it matters for trucking finance
Physical damage is mandatory while the truck is financed — lapsed coverage triggers lender-placed insurance (significantly more expensive) and can create technical default. For paid-off trucks, owners can drop coverage but assume the full risk of total loss, which for a $150,000+ Class 8 tractor is rarely a sensible bet.
Deductible choice has real cash-flow implications: a $5,000 vs. $1,000 deductible saves premium but means a fender-bender stresses working capital. Lenders verify coverage at policy renewal and after claims, and a missed renewal can trigger same-day force-placed coverage at 2–3x market rates that gets added directly to the loan balance.
Related terms
- Motor Truck Cargo (MTC) — Insurance coverage protecting the freight in transit; required by most brokers and shippers, typically $100K minimum for general freight.
- Primary Liability — Commercial auto insurance covering bodily injury and property damage to others when at fault; FMCSA mandates $750K–$5M minimum based on cargo.
- Equipment Loan — Term loan secured by the financed vehicle (truck, trailer, or other equipment); standard structure for buying Class 8 tractors and trailers.
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