Editorial · June 9, 2024
Commercial Auto Insurance: When a Business Needs a Policy
Commercial auto insurance is the policy that covers vehicles used to run a business. If you or your staff drive for work, a personal car policy may not pay when something goes wrong. This guide helps you decide if your business needs a policy of its own.
What commercial auto insurance does
A commercial auto policy protects a business when a work vehicle is in a crash. It works much like a personal policy. It can pay for damage you cause to other cars and property. It can pay medical bills for people you injure. You can also add coverage for damage to your own vehicle, such as collision, theft or storm damage.
The big difference is who and what is covered. A commercial policy is written for the business. It can cover any employee who has permission to drive the company vehicle. A personal policy is written for one person and the way that person drives in daily life.
Why a personal policy may fall short
Insurers see work driving as higher risk. A person who visits clients every week is on the road far more than a person who drives to one office each day. Because of that, many personal policies limit or leave out business use. They may not pay for a crash that happens while you make deliveries or haul tools to a job site.
One accident on the job can cost a small business thousands of dollars. If the claim is denied, the business has to pay it. That is the main reason owners look at a business policy before they need one.
Driving to and from work is usually treated as personal use. Driving to meet a client, pick up supplies or run a work errand is business use. Policies word this differently, so read yours.
Signs your business needs a policy
Ask these questions. A yes to any one of them is a reason to talk with a licensed insurance agent.
- Is a vehicle titled in the name of the business?
- Do employees drive to job sites, clients or deliveries in a company vehicle?
- Do you carry tools, equipment, goods, or paying passengers?
- Do you drive for work often, not just now and then?
Almost every state expects a business with company-owned vehicles to insure them with a commercial policy. If you only drive for work now and then, your own insurer may be able to adjust your personal policy. Ask them in writing what is and is not covered.
When employees use their own cars
Many small firms own no vehicles at all. Staff may still use their own cars to run errands, visit clients or pick up supplies. They may also rent a car for a business trip. A crash in one of those cars can still lead to a lawsuit against the business.
Hired and non-owned auto coverage is built for this case. It covers the business for claims that come from work driving in a personal, rented or leased vehicle. It does not insure the car itself. Any business that has staff drive their own cars for work can look at it.
Know your state and federal minimums
Every state sets a minimum amount of liability insurance. California, for example, required at least $15,000 for injury or death to one person, $30,000 for injury or death to more than one person, and $5,000 for property damage. Its Department of Motor Vehicles also notes that commercial and fleet vehicles can face added insurance rules from federal, state or local agencies.
Those are only floors. A serious crash can cost far more than a minimum limit, and the business pays the rest. Many owners choose higher limits for that reason.
Some trucking and bus operations face federal rules too. The Federal Motor Carrier Safety Administration lists public liability filings from $750,000 to $5,000,000 for most freight carriers, depending on what they haul. A lower $300,000 level applies to non-hazardous freight in vehicles under 10,001 pounds. Carriers of passengers face higher amounts. These rules apply to for-hire carriers that need federal operating authority, not to a small firm with one delivery van.
How to decide
Start with a list of every vehicle used for work and every person who drives. Note who owns each vehicle and how often it is used for the business. Then call a licensed agent and ask for quotes from more than one insurer.
The U.S. Small Business Administration gives the same general advice for all business insurance. Insure against losses you could not pay on your own. Compare terms and prices from several agents. Review your coverage every year, and call your agent when you buy a vehicle or expand.
Commercial auto insurance is one piece of a full plan. It sits next to general liability, property and workers' compensation coverage. Your agent can show how they fit together for your trade.
Sources
- Insureon, "Why personal car insurance may not cover business use" (updated July 30, 2022), insureon.com/blog/why-personal-car-insurance-may-not-cover-business-use
- California Department of Motor Vehicles, "Insurance Requirements," dmv.ca.gov/portal/vehicle-registration/insurance-requirements
- Federal Motor Carrier Safety Administration, "Insurance Requirements," fmcsa.dot.gov/registration/insurance-requirements
- U.S. Small Business Administration, "Get business insurance," sba.gov/business-guide/launch-your-business/get-business-insurance