If you are one of the many small business owners who use vehicles for some aspect of your business, then you may already know that commercial auto coverage is a must. But after that, it gets a little confusing. What, exactly, is included in your coverage? What doesn't it cover? And what if you use your personal vehicles for work?
In this article, we’ll take an in-depth look at commercial auto insurance so that you have the answers you need when it’s time to purchase your policy.
What Is Commercial Auto Insurance?
Commercial auto insurance is a type of insurance that protects businesses from accidents and losses caused by—or involving—business vehicles.
Usually, the covered vehicles are titled to the business. If you are using your personal auto at your job, you may need a different policy altogether, called hired and non-owned auto insurance, which is different from commercial insurance, but is meant to cover you if you use your personal vehicle for work purposes (we’ll cover that later!).
What Does a Commerical Auto Policy Cover Exactly?
So just what are you paying for with your commercial vehicle insurance? That policy is, in some ways, similar to your personal car insurance. Here are some of the main coverages a commercial auto policy will include:
There are two types of liability coverage—bodily injury and property damage—and both refer to motorist coverage for the other driver, their passengers, and their vehicle when the accident’s your fault.
Liability can pay for lost wages, medical bills, and repair costs for the other driver and vehicle. It can also cover other things, like a mailbox or fencepost that were damaged. In most states, liability coverage is required by law to a certain minimum. For example, in California, you need to have at least 15/30/5 liability, which means $15,000 in bodily injury for a single injury or death, $30,000 coverage for injury or death of more than one person in a single accident, and $5,000 for property damage.
Is the minimum enough? Experts say no. If, for example, your van driver totals a 2020 Honda Civic, you’ll be out roughly $20K, and the minimum coverage would only give you $5K of that amount.
Collision and Comprehensive
This is not mandatory, but if your cars and trucks have value, it’s worth having. Collision covers you, not surprisingly, from damages related to a collision where you are at fault. Comprehensive coverage is used for non-accident-related damage or theft, including vandalism and natural disasters. Note that these two insurance types have a deductible that must be paid before coverage kicks in.
Usually called med-pay, this will pay for medical expenses that you or your drivers and passengers incur. If the other driver is responsible for the accident, their liability coverage will pay for your injuries, but if you or your driver are the cause, you’ll need this coverage. Med-pay is similar to a type of coverage called personal injury protection (PIP), which is only available in some states. In some states, med-pay or PIP is mandatory; in others it’s either optional or not available.
About one in eight drivers is on the road illegally without insurance. If you’re in an accident with one, even if they are at fault, they may not have the insurance—or enough insurance—to pay for damages or injuries. That’s where this coverage comes in. Like liability, it gives you coverage both for bodily injury and property damage.
Other Optional Coverages
Depending on the type of business you have and the type of vehicle that you use, you can customize your policy with options such as towing coverage, rental reimbursement, and more.
What Is the Difference between Commercial and Business Auto Insurance?
These two terms are often used interchangeably (we admit: we’re doing it ourselves in this article), but they have slightly different meanings, and those meanings are important to know when you are working with insurance agents and insurance companies.
Commercial auto insurance generally refers to the use of specialized vehicles—such as 18-wheelers or tractor-trailers—that are used for specific transportation needs. Business auto insurance is related more to regular automobiles that are used as business vehicles.
So let’s say you run a small business supplying home health care aides to those in need. You have a fleet of six company cars, branded with the company’s logo, that your employees use to get to their clients. You would, most likely, be looking for business auto insurance coverage.
A construction company, however, that uses large vehicles to transport heavy equipment and machinery from job site to job site or from a warehouse to a site in another county, might be better served by a commercial auto insurance policy.
In general, commercial auto is pricier than business auto, because the larger and more complex a vehicle is, the more likely that it can both inflict and sustain extensive physical damage in an accident—thus, you are likely to pay higher premiums.
What If I Use a Personal Car for Work–What Insurance Do I Need?
Let’s say you run a company where your employees use their personal vehicles and are paid a mileage rate by the company. In that case, there’s a third kind of coverage, called hired and non-owned auto insurance, or HNOA. This covers your business’s liability if you allow your employees to use their own vehicles for business use. It will also cover you for vehicles that you may rent for short-term use.
But wait, doesn’t your personal auto insurance policy cover your own vehicles?
Well, yes and no. Let’s say every Friday morning you stop at the donut shop to pick up pastries for your employees using your personal car—which is what you drive to work. In that case, your personal policy should cover you if you have an accident after picking up those 12 cream-filled.
But if you’re a construction foreman, for example, and you use your personally-owned truck to travel to a variety of job sites each day, and furthermore, you carry business tools or equipment in the back of your truck, your personal insurer might balk at paying out on an accident.
In that case, the truck should be listed on the company’s hired and non-owned auto insurance policy so that an accident on-the-job will be solidly covered.
There is some gray area here, so your best bet is to talk to a knowledgeable broker-agent who can suss out just how much of your vehicle’s mileage is job-related to help you determine if you need to add your personal use vehicle to your commercial policy.
What Doesn’t a Commercial Auto Policy Cover?
We’ve talked about what a commercial (or business) auto policy can do for you, but what can’t it do? Are there exclusions you need to consider? What about coverage limits? Are your business needs fully covered with a standard policy?
First, understand that some types of coverage have a deductible—most commonly collision and comprehensive coverage. You choose this deductible when you apply for the policy. Following an accident, the payout you receive will take that deductible into account.
So let’s say you have a $1,000 deductible. Your driver is in a fender bender with another car and is at fault. Your liability coverage pays for the damage to the other car, and since there’s no deductible on liability, the payout should be equal to the amount needed to fix the other car.
But then there’s also damage to your business vehicle, at a cost of $1,500, which is credited to your collision coverage. You will receive a check for only $500 because the first $1,000 is charged to your deductible. So choose your deductible wisely, and make sure it’s never more than you’d be able to pay in the event of an accident.
Although every policy is unique, there are likely to be a few exclusions that are not covered. These may include the following:
- Damage that is done intentionally by an employee—for example, a “road rage” incident.
- Injuries that could instead be paid by your workers’ compensation coverage and extra costs associated with that. For example, if your employee is reimbursed for their injuries through workers’ comp but decides to sue your company anyway for negligence, legal fees should be paid by your general liability coverage, not your auto insurance.
- Damage to goods or other items that were being transported by a covered vehicle. These would, instead, be covered by your inland marine insurance, an optional coverage type that protects you against damage to equipment, machines, and tools.
- Any damage caused by a pollutant.
What Are the Four Most Common Types of Commercial Insurance?
We’ve talked about commercial auto insurance and highlighted details that you need to know to make the right choice with your work vehicles. But it’s not the only type of policy you need.
Small business owners like yourself need insurance coverage for a broad range of risks. Let’s take a look at the most common types of coverage so you can check off what you do and don’t already have. Some of these can be combined into something called a business owners policy or BOP. Here are the four that most experts would say are necessary:
- Workers’ compensation: If you have employees, you most likely are required by law (depending on where you are located) to carry workers’ comp insurance. This covers you and your employees against the risk of on-the-job injuries. In the past, employers estimated their workers’ comp based on their annual payroll. That led to a lot of underpaying and overpaying for workers’ comp, since payrolls often change throughout the year. Today’s employers, however, can use services such as Hourly, which syncs payroll directly with your workers’ comp, so no estimating is needed. Your premiums will always be super accurate, and you can pay your entire team with one click.
- Liability insurance: This covers you for legal or medical costs if someone is injured on your business property or through your business actions. Most states require it, and it is usually bundled with property insurance.
- Property damage liability: This important damage coverage pays for repairs to your business property, whether that’s a building, inventory, or equipment. Every policy is different in exactly what it covers, so you’ll want to be sure to read your policy documents to know what is and isn’t included in your coverage. One thing that property insurance doesn’t cover, however, is a company’s vehicles.
- Commercial auto insurance: Whether you have a single van that delivers floral arrangements or a fleet of 18-wheelers, commercial auto insurance should be a vital part of your business plan—if for no other reason than that it’s required by law in all states except two (New Hampshire and Virginia, and in those states, you need to prove that you have the financial means to pay for accidents if you want to opt-out). Commercial auto insurance can be broken down into a range of coverage types: liability, property damage, collision coverage, and more, which we’ve already discussed.
Getting Your Coverage Options Right the First Time Around
So what’s your takeaway from all this? While commercial auto insurance is a bit more complicated than the coverage you have on your personal auto, it’s possible to wrap your head around it. Our suggestion? Put in a call to your local agent. They can answer questions, suggest optional coverages, and work to get the best price for your policy. When it comes to choosing the right insurance, a good agent or broker can be your best ally.