Commercial Auto Insurance: How it Works and Why You need It

If you’re a business owner who relies on one or more vehicles to keep operations running smoothly, chances are you need to purchase a commercial auto insurance policy. Having this form of insurance will protect your company from liabilities by covering the costs of personal injuries and property damage sustained during a collision or accident. Business auto insurance is required by law in most states whether you own only one company vehicle or an entire fleet.

While navigating commercial auto insurance can seem much more complex than personal insurance coverage, the truth is that it’s fairly simple to understand once you understand the basics. Read on to learn everything you need to know about commercial auto insurance, including what it is, how it works, and the events a business auto policy will typically cover.

What is Commercial Auto Insurance and Who Needs It?

In short, a commercial auto insurance policy protects one or more business vehicles in the event of an accident. If one of your employees gets into a collision while driving a business vehicle, this insurance will help to pay for the property damage and any personal injuries sustained by either party. Commercial auto insurance will also cover damages caused by vandalism, theft, floods, and other unforeseen circumstances.

In a vast majority of cases, a business owner who uses a vehicle for work regularly will need commercial auto insurance. If an employee uses their personal vehicle for business purposes, their automobile will likely need coverage under a commercial auto policy, as well.With commercial auto insurance, all vehicles and drivers on the policy are fully protected.

As of 2022, the commercial auto insurance market in the U.S. amounts to over $5.2 billion a year. Policyholders include individuals who run a wide range of businesses across various industries. Some common businesses that require commercial auto insurance may include:

  • Landscapers
  • General contractors
  • Plumbers
  • Construction companies
  • Retailers
  • Towing companies
  • Taxi companies
  • Freight and shipping businesses

Business owners who regularly drive between worksites or need to transport goods, supplies, and equipment to various locations will likely need to purchase commercial auto insurance. In addition, businesses that provide transportation services for clients such as taxi companies or shipping agencies also need commercial auto insurance to cover their fleet of vehicles and all employed drivers. While business automotive insurance is ideal for businesses with several vehicles, sole proprietors who work alone should also consider getting a policy for their own work vehicle to cover any accidents.

How Much Does Commercial Auto Insurance Cost?

The overall cost of commercial automotive insurance fluctuates depending on many different factors. Some of these factors include:

  • The type of vehicle
  • The location of your vehicles
  • How many vehicles your business uses
  • The type of work your company performs
  • The gross vehicle weight

Before providing you with a quote, insurance companies will need to acquire some specific information, such as:

Coverage Needed

The type of physical damage coverage and liability protection you select will impact the amount you pay each month. With basic collision coverage, your vehicles will be covered in the event of an accident with another automobile. However, for damage caused by vandalism, fire, floods, or other events, you will need to pay more for comprehensive coverage.

The liability coverage side of a commercial auto insurance policy will protect your business from litigation when an accident results in the injury of a third party or property damage to another vehicle, building utility pole, etc. In some cases, insurance companies will bundle bodily injury and property damage coverage together into a Combined Single Limit or CSL that limits the total payout possible for a single accident to a specified grand total. The cost of monthly premiums for various levels of physical damage or liability coverage will change depending on the policy limit. In other words, a policy that provides $500,000 in liability coverage will cost less than a $1,000,000 plan.

Physical Location of the Vehicles

All insurance companies carefully calculate risk to determine the appropriate costs for coverage premiums. If your business is located in a part of town where crime is a major problem, you can expect to pay more each month for your business auto insurance policy. However, you may be eligible for discounts if you invest in anti-theft devices for all your business vehicles. You can also potentially qualify for lower premiums if you park your vehicles in a secure area like a parking garage or fenced-off location with active surveillance.

Previous Claims

If your business has filed several claims in the past, you will likely need to pay more for commercial auto insurance than someone with no incidents on their record. In most cases, insurance providers will consider previous claims when calculating pricing for up to 3 to 5 years after the event takes place. Multiple claims within the same policy period can result in a more substantial rate increase, especially if the claims were accidents where your business was at fault.

Estimated Value of the Vehicles

The types of business vehicles you use and their estimated value will also affect the price of your commercial automotive insurance. Bear in mind that car insurance companies will determine the value of a vehicle by calculating its actual cash value. Such takes into account factors like depreciation and its expected remaining lifespan. This means that a used car that cost $3,000 a few years ago may only carry an actual cash value of $1,500 if it’s been in an accident or has clocked a significant number of miles on the odometer.

Credit History and Driving Records

A business owner’s credit history and prior driving record will also play a role in determining commercial auto insurance rates. Credit scores can range between 300 and 850 with 700 being the standard measurement for ‘good’ credit. Individuals with a credit score lower than 580 can expect to pay more each month for business auto insurance than someone with a score of 700 or higher. To determine your score, credit bureaus will examine many different details such as your credit card payment history, how much debt you have, the length of time you’ve had access to credit, and more.

Commercial auto insurance providers will also look at your driving records to help determine the pricing on premiums. Any accidents, traffic tickets, or driving violations will further drive up monthly costs. Likewise, if any of your employees who use a company vehicle has a poor driving record, this can also impact how much you pay to provide coverage for them.

Usage of the Vehicles

Semi traveling on a highway

How you plan to use your business vehicles during work hours will affect what you pay for commercial auto insurance. For example, if you’re regularly hauling potentially hazardous materials in heavy-duty trucks, you will likely pay more than someone using a few vans to deliver pastry goods to a handful of local businesses. In short, the price of your monthly premiums will increase commensurate with risk exposure.

How Commercial Auto Insurance Differs from Regular Auto Insurance

To determine if you need commercial auto insurance or traditional personal auto insurance, it’s first important to examine the main differences between them. While there are some similarities in how insurance companies calculate the rates of personal vs business auto insurance, these two types of coverage policies serve very specific purposes. 

Here are three main ways commercial auto insurance differs from individual auto insurance.

Higher Premiums, Better Coverage

For the most part, a commercial auto insurance policy will cost more than personal auto insurance. The primary reason for this higher cost is that businesses with multiple vehicles and drivers have a greater risk of having an accident, resulting in a higher risk profile than a single driver. However, the increased monthly premium for business auto insurance provides greater coverage for all parties involved whenever an incident occurs. 

Basic personal car insurance policy limits for liability coverage vary widely by state, but many plans follow the 25/50/25 model. This means that the driver is covered up to a maximum of $25,000 per person for bodily injury, $50,000 for total personal injuries sustained in an accident, and $25,000 to pay for property damage for either party. These are referred to as split limits. The property damage portion is strictly for the other person’s property, not the insured’s. With commercial auto insurance, policy limits are much higher, often providing coverage of up to $1,000,000 or more for property damage and bodily injury.

Commercial Auto Insurance is Ideal for Larger Vehicles

Vehicles that require a CDL to operate or have a commercial tag on the license plate will likely need business auto insurance coverage. These vehicles include semi-trucks, tractor-trailers, box trucks, flatbed trucks, or passenger buses. Since these larger vehicles have the potential to cause much more damage than commuter vehicles and are more expensive to replace, premiums are higher to cover potential damages. In contrast, personal auto insurance policies are meant to provide coverage for smaller vehicles like compact cars, minivans, or smaller SUVs where the potential losses from a collision, theft, or flood are much less costly.

Only Business Auto Insurance will Cover Work-Related Accidents

Unfortunately, having a personal auto insurance policy will not cover a business vehicle that gets into an accident on the job. However, commercial auto insurance plans will typically cover a business vehicle used occasionally for personal use. In other words, having business automotive insurance will protect vehicles and drivers on or off the clock while regular auto insurance will only cover incidents that occur outside the scope of work. 

For some individuals, a personal auto insurance policy may be adequate if the vehicle is only used for work in certain circumstances. For instance, an individual who works part-time creating arts and crafts or home décor products may only use their personal vehicle to deliver goods to a few customers once or twice a month. To navigate cases like these, it’s essential to speak with your insurance agent to explore the right coverage options and whether or not commercial automotive insurance is necessary for you.

What Does Business Vehicle Insurance Cover?

Base-level commercial auto insurance will provide your business with collision, liability, and uninsured motorist coverage for all business vehicles listed on the policy. In addition, business automotive insurance will typically offer coverage for underinsured motorists, ensuring your company is reimbursed for damages that exceed the limit of the other party’s liability policy. However, some businesses may wish to expand their commercial auto insurance coverage to include a wide range of endorsements to protect against many other potential expenses, including:

  • On-hook towing services
  • Trailer interchange
  • Motor truck cargo coverage
  • Rental car reimbursement with downtime
  • Hired vehicle coverage
  • Non-hired vehicle coverage
  • Roadside assistance
  • Increased medical expense coverage

To determine exactly what type of coverage you need, it’s important to carefully explore all your options with an experienced commercial auto insurance agent. At Torian Insurance, our team of insurance specialists has over 600 years of combined experience in the industry helping businesses find the coverage solutions they need to remain fully protected at all times. We’ll walk you through the entire commercial auto insurance enrollment process step-by-step so you can feel confident and secure about your level of coverage. As things change and your business grows, we’ll offer recommendations to mitigate new risks so your business can focus on the road ahead.

Is Commercial Auto Insurance Required in Every State?

Currently, 48 states require some form of commercial auto insurance for businesses, and minimum policy limits vary widely. In Virginia, business automotive insurance is not required by law. Instead, businesses operating in the state must show that they can cover the minimal amount for standard bodily injury and property damage in lieu of a commercial auto insurance policy. Virginia also has specific coverage requirements for vehicles moving cargo across state lines.

New Hampshire is the only other state that doesn’t require commercial auto insurance for businesses. With that said, the state does have specific laws governing insurance coverage for passenger vehicles. Although having a commercial auto insurance policy isn’t mandatory in Virginia or New Hampshire, businesses in these states are still recommended to seek coverage to mitigate the financial risks of lawsuits, injuries, and property damage.

Can I Customize my Commercial Auto Insurance Plan?

Your business auto insurance provider will work closely with you to find the right coverage plan to suit your unique needs. After all, every business has a different risk profile and requires a specific level of coverage to mitigate various liabilities. Property damage coverage will vary based on the nature of your business but when it comes to liability, the risk is the same no matter what. 

For example, a pizza delivery driver is usually less likely to get into an accident compared to a construction company that regularly hauls expensive, heavy machinery to job sites across the state. The construction company will likely need full coverage to protect themselves from financial losses caused by equipment damage or accidents. But in either scenario, if the driver causes a fatal auto accident, they’re going to need as much coverage as possible. 

At Torian Insurance, we typically recommend a starting point of $1,000,000 for any business.

Factors to Consider with a Commercial Auto Insurance Policy

If your business is new and you’re just beginning to explore commercial auto insurance, finding the right policy for you can seem like a challenge at first. To strike the perfect balance between monthly premium costs and coverage amount per claim, it can help to take a closer look at a few critical details related to your business. 

Here are a few factors to evaluate before you commit to purchasing a particular business automobile insurance policy.

Size of your Business

As companies grow, the chances of an accident or lawsuit occurring can increase exponentially. If policy limits don’t rise to keep up with your company’s expansion, you may find yourself paying out of pocket for more claims going forward. Be sure to explore expanded coverage options any time your company acquires a new location, hires new personnel, or purchases additional fleet vehicles. If your business decides to make cutbacks in the future, you can always adjust your policy to accommodate your current requirements.

Number of Drivers

A large fleet of commercial vehicles

Some businesses that perform landscaping, roofing, or construction can have dozens of employees driving company vehicles on a daily basis. With so many materials and workers moving from job site to job site, incidents resulting in a claim are far more common. 

Before giving a company vehicle to a new employee, be sure to add them to your current policy to ensure they’re fully protected before getting on the road. You’ll also want to notify your insurance agent when employees leave so they can adjust the rates you pay to accommodate the size of your workforce.

Potential Liabilities

Each industry comes with its own set of work hazards and risks, so you’ll want to select a business auto insurance policy that will cover the situations you’re most likely to encounter. For instance, a towing company will need a commercial auto insurance policy that covers on-hook towing just in case the towing process causes damage to the other vehicle. However, if the tow trucks are stored in a secure location when they’re not in use, additional coverage endorsements protecting against vandalism, theft, or floods may not be as necessary. Carefully evaluate which liabilities present the greatest financial peril to your business and build your commercial auto insurance policy around mitigating those risks.

How do I get Commercial Auto Insurance?

The first step to acquiring commercial auto insurance for your business is to contact various insurance companies for quotes on coverage premiums. While your personal auto insurance provider will likely offer business auto insurance policies, it’s often a good idea to shop around to find the best deal available. Once you find a competitively-priced plan that suits the needs of your business, your insurance agent will begin to guide you through the enrollment process.

Will my Personal Auto Insurance Plan Cover my Business?

Unfortunately, personal auto insurance will not protect you from liabilities that occur while using a vehicle to conduct business. For example, if you get into a fender bender while transporting supplies to a worksite, your business could be held responsible to pay out of pocket for any damages. However, some regular auto insurance plans will cover personal vehicles that are occasionally used for business purposes. For vehicles that are used almost exclusively for work-related errands or transporting materials and employees, a commercial auto insurance policy is required.

Will Commercial Auto Insurance Cover a Personal Vehicle Used for Work?

Vehicles used both for personal use and business may not be fully protected under a commercial auto insurance policy. Consider a delivery driver who uses their own vehicle daily for work. If the driver gets into a wreck while delivering a pizza, their personal auto insurance policy may not cover the cost of the accident. In this case, the employer would need hired and non-owned auto insurance (HNOA) coverage for the vehicle. This coverage protects the business from a liability caused by an employee in their personally owned vehicle. It does not protect the vehicle or the driver of that vehicle. It is meant solely to protect the business. 

Some commercial auto insurance policies may include HNOA insurance, but you can also choose to buy a separate policy that specifically covers non-owned personal vehicles used by your employees for work purposes.

Does Commercial Auto Insurance Cover Rental Car Costs when Traveling for Work, or Is that Separate?

If your company’s current commercial automobile insurance policy includes an endorsement for hired and non-owned vehicles, any rental car you use for work purposes should be covered. However, not all commercial auto insurance plans automatically provide coverage for these circumstances, and you may need to add rental car insurance coverage to your policy before using a non-owned car for work. If you decide to rent a car for strictly non-business use while your primary vehicle is being repaired, a personal insurance policy is sufficient.

Is Commercial Auto Insurance Tax Deductible?

So long as your commercial auto insurance contributes solely to business purposes, you can write off any expenses as a tax deduction. To prove that your business vehicles are only used for business operations, you should be prepared to keep accurate records of mileage and usage should the IRS request any documentation. When filling out your taxes, you’ll need to complete Form 2106 to receive a deduction for commercial auto insurance expenses.

How to Save on Commercial Auto Insurance

A glass container with coins and a plant growing

Business auto insurance can present a major expense to some companies, especially those who rely on an entire fleet of vehicles to keep operations running smoothly. Luckily, there are several things employers can do to reduce the costs of their commercial auto insurance premiums. 

Here are a few simple tips that can help you save money on auto coverage for your vehicles and employees.

Choose Safe Drivers with Consistent Records

Take the time to vet the driving records of employees before allowing them to drive a company vehicle. If a worker has been involved in several accidents in the last few years, you’ll likely see an increase in your monthly insurance payments. To further ensure that your workers are driving safely, it may be a good idea to invest in defensive driving courses or additional training that can help them avoid accidents in the future.

Invest in Enhanced Safety and Security Systems for your Vehicles

Vehicles equipped with dashboard surveillance, collision detection, anti-theft devices, or other safety and security features may help you qualify for lower rates on your commercial auto insurance policy. If you only own a handful of business vehicles, investing in this type of equipment may help you save a lot of money in the long run. Just be sure to notify your insurance agent of any vehicle upgrades that may warrant a rate reduction.

Take Advantage of Discounts

Insurance providers often offer a range of discounts that can help you reduce your monthly payments. Some discounts are based on how long you’ve been with a particular insurance company or the amount of time that has elapsed since the last accident. Other times, insurance companies will offer lower premiums to customers who choose to bundle commercial auto insurance with other policies like workers’ compensation insurance or commercial property insurance. To learn more, discuss available discounts with your insurance provider to explore ways you may be eligible to reduce the cost of your policy going forward.

At Torian Insurance, we make finding the perfect commercial auto insurance coverage for your business a quick and easy process. We’ll customize a coverage plan uniquely crafted for your specific needs so you can feel confident your business is always protected. Our team will also find ways for you to save money on business auto insurance through bundled discounts on other policies you need for your company. To get started, contact our friendly, experienced associates at Torian Insurance today.

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