Any business that uses a vehicle to conduct its regular operations needs to have commercial auto insurance. This kind of insurance covers damage or bodily injury if an employee gets into an accident while driving a vehicle for business purposes.
While commercial auto insurance may share some similarities with personal auto insurance, there are some important distinctions between the two. Here’s what you need to know about commercial auto insurance, from what it covers to how to decide if you need it.
What Is Commercial Car Insurance?
Any vehicle that is designated for business use—from a taxi to a dump truck, a delivery van to a food truck—must carry protection against both property damage and liability in case of an accident. That’s where commercial auto insurance comes in. It provides the coverage that the business and its employees need to protect them from the potential financial fallout of a collision.
Commercial auto insurance policies generally offer the following types of coverage:
- Liability coverage: If you or your employees cause property damage, bodily injury or death, this coverage will pay for the damages up to, and potentially including, the costs of a legal defense.
- Physical damage coverage: If your business vehicle is physically damaged, this kind of coverage will pay for its repair or replacement. Physical damage coverage comes in multiple forms:
- Collision coverage, which pays for damage due to a collision or an overturned vehicle
- Comprehensive coverage: Pays for damage from any cause other than what’s covered by collision coverage, wear and tear, mechanical breakdown, or acts of war, and can include fire, floods, theft, earthquakes, or collisions with wild animals
- Named perils or specified perils coverage: Only covers damage caused by the specific perils listed in the policy
- No-fault medical coverage: If the driver or passengers in your business vehicle have medical bills as a result of an accident in the vehicle, this type of commercial insurance will pay those bills, regardless of who was at fault in the accident.
- Uninsured motorist’s coverage: This coverage pays for damages caused by either an uninsured motorist or a hit-and-run accident.
Who Needs Commercial Car Insurance?
Gerry Zoller, chairman of the American Heritage Insurance Agency in Eldersburg, Maryland, told The Balance via phone that, “the trigger for needing commercial auto insurance is when you use a vehicle for business purposes.”
While it’s abundantly clear that any business that makes its money on the road will need commercial car insurance, it's important to remember that commercial auto insurance provides protection for any vehicle designated for business use. This includes personal vehicles that are used for business purposes—such as when a real estate agent uses their own car to drive clients to see properties.
If you are an employee of a business that asks you to use your personal vehicle for business purposes, contact your personal auto insurance carrier to let them know.
“Certain business driving in a personal car is considered incidental, and your personal carrier may cover you, with a small surcharge,” Zoller said. “It’s the business’s responsibility to buy commercial auto coverage to protect itself when you are driving a non-company vehicle, using either non-owned coverage for your personal vehicle, or hired/borrowed coverage for things like rental cars you might use on a business trip.”
How Does Commercial Insurance Differ From Personal Car Insurance?
An important difference between personal auto insurance and the commercial variety is how limits are calculated. Most personal auto insurance has separate limits for bodily injury liability and property damage liability, while commercial auto insurance is more likely to have a combined single limit (CSL).
The CSL aspect of commercial auto insurance means you will have the same dollar amount of coverage per covered occurrence, no matter whether bodily injury or property damage occurs, or how many people can make a claim. The upshot is that your limits are higher with a CSL policy. According to the Insurance Information Institute (III), “the most common commercial automobile CSLs for a small business are $500,000 and $1,000,000.”
Where Can You Get Commercial Auto Insurance?
Many traditional insurers that offer personal auto insurance also provide commercial auto insurance policies. While it is possible to find and buy commercial auto insurance online, talking to an insurance agent may be best.
“Do you really know what you need if you’re not familiar with the industry?” Zoller said. “You need someone who can advise you. Find a good independent insurance agent, because they represent multiple insurers and can help you get the best policy to fit your needs.”
How Much Does Commercial Car Insurance Cost?
Prices for commercial auto insurance can vary a great deal. According to Zoller, it can depend on a few factors.
“You can expect that it’ll be more than your personal auto insurance policy,” he said. “It can also depend on the type of business you’re in.”
For instance, Zoller told The Balance that a traveling salesperson who uses their car to get to sales calls will pay less than a contractor who uses their pickup truck to haul equipment and materials.
Rates will depend a great deal on where you live, the distance you drive, and your driving record.
For a small business owner insuring a sedan for transportation (rather than any kind of hauling), policies average between $1,200 and $2,400 per year.
What Could Happen If You Don’t Have Commercial Auto Insurance?
Going without commercial auto insurance can open up your business to liability. Zoller recounted a story about one client who asked an employee to go to the post office on official business in her own car.
“She got into an accident on the way there,” he said. “Without commercial auto insurance, the business could have been sued for damages. The commercial policy paid the damages, protecting both the company and the employee.”
The Bottom Line
Driving as part of your work could be a risky move if you don’t have the proper insurance to cover any potential losses. Commercial auto insurance offers protection for businesses—and anyone who drives for them.
Making sure you have the proper coverage will help you focus on the important work that keeps the business humming along.