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Commercial Auto Insurance: What Is It? When Does Your Company Need One?

Updated: September 12, 2018

Commercial auto insurance is an insurance policy that only covers business vehicles.

Any vehicle that is driven for the purposes of a business, whether it is owned by the business or its employees, must have an attached commercial auto insurance policy.

It is a misconception that commercial auto insurance is only required for vehicles owned by a business.

In fact, when employees use their personal cars for business reasons, they are legally required to have a business auto insurance policy on that vehicle.

Businesses can select from different policies based on the cheapest auto insurance rates, or the type of business they run.

What is Commercial Auto Insurance?

Commercial auto insurance is a form of auto insurance that specifically pertains to business vehicles, or vehicles used for business.

Commercial auto insurance ensures that businesses are covered and protected against any liability or damage when their vehicles are being driven.

Commercial auto insurance ensures that businesses are covered and protected against any liability or damage when their vehicles are being driven. In addition, this coverage protects the drivers that are operating those vehicles. Some companies even get commercial auto insurance for a fleet of vehicles, because of the nature of their business.

It is often a misconception that only cars owned by a business require coverage. This is false. Even cars owned by employees that are used for business reasons must have commercial auto insurance.

It is impossible to obtain compensation from an insurance company through a personal insurance policy if the vehicle was being driven for business purposes. For example, a pizza delivery driver cannot get into an accident and expect his personal insurance to cover the incident.

There are many facets to commercial auto insurance, with policies including liability coverage, collision coverage, comprehensive coverage, and towing or roadside assistance coverage.

What Does Commercial Auto Insurance Cover?

Almost every commercial auto insurance policy requires liability coverage. Specific states will have their own minimum liability coverage limits. However, a company can choose to get additional liability coverage in their insurance for business vehicles.

Collision coverage protects against the cost of damages from a collision where the insured driver was at fault.

The cheapest auto insurance rates often come with limited policies. If a business wants collision, comprehensive and specific perils coverage, they may not find these add-ons in cheap commercial truck insurance.

Collision coverage protects against the cost of damages from a collision where the insured driver was at fault. Comprehensive coverage deals with damage that occurs while the vehicle is not on the road – such as mechanical issues, floods, fires, falling objects, theft and vandalism.

Some companies also go with umbrella coverage on their commercial auto insurance policy. Umbrella coverage gives a much higher liability protection, which is useful if a company may find themselves facing a lawsuit that totals up to $1 million.

If a lawsuit does occur against the business related to an accident, the liability coverage stipulates how the insurer will protect the business. It is also up to the insurer to decide whether to contest a lawsuit or reach a settlement.

Who Needs Commercial Auto Insurance?

Businesses that require vehicles for their employees to drive while they are “on the clock” will need commercial auto insurance. If a car is registered as a commercial vehicle, it automatically requires a commercial auto insurance policy.

Other types of companies that need commercial auto insurance include taxi services, limousine services and chauffeur services.

Insurance for business vehicles also applies to personal cars that are used by employees when they are working for a company. For example, an employee who uses his or her personal car to take the company’s clients to the airport will need a commercial policy while performing that task.

If a company of any size is performing the following activates, they are absolutely required to have some form of insurance for business vehicles: moving flammable material, transporting work supplies or equipment, delivering magazines or moving housekeeping items for a business.

Other types of companies that need commercial auto insurance include taxi services, limousine services and chauffeur services. These companies cannot legally operate their fleet of vehicles on the road unless they are commercially insured.

Businesses that transport very heavy items, or hazardous materials, may choose to get higher levels of coverage to compensate for any possible liability issues related to accidents.

Different Types of Commercial Auto Insurance

Commercial auto insurance is similar to personal insurance in the sense that a company can get varying degrees of coverage.

In many states, liability coverage is the only thing legally required, which gives businesses a lot of leeway for auto insurance.

For example, a company may have a fleet of heavy duty trucks that transport materials from one state to another. These vehicles will require a great deal of coverage. Some companies may even get umbrella coverage for these trucks to protect against high liability lawsuits.

However, this does not mean that the company needs that level of insurance for all their vehicles. Smaller cars that employees use while conducting business may only need the minimum level of insurance for business vehicles.

Each state has their own set of legal requirements for commercial auto insurance. In many states, liability coverage is the only thing legally required, which gives businesses a lot of leeway for auto insurance.

Collision, comprehensive and specific perils coverage are available as options in commercial auto insurance policies. Some businesses may get all these coverages, while others will only get collision or comprehensive coverage.

Commercial Auto Insurance: Important Facts to Consider

The cost of getting commercial auto insurance does not always outweigh the possible downsides. For example, companies with a huge fleet of vehicles will find that the cost of collision and comprehensive coverage on these vehicles is very expensive.

Businesses that can afford the extra protection may want to get the maximum available coverage.

Instead of getting collision and comprehensive commercial auto insurance for each vehicle, the company may decide to stick with liability coverage. They are taking a calculated risk of having to pay the full costs of damage to one or two vehicles a quarter, instead of the high insurance premiums for every single vehicle.

The level of coverage your business obtains depends greatly on the specific situation and circumstances. Businesses that can afford the extra protection may want to get the maximum available coverage. In contrast, new businesses may take calculated risks to save a little bit of money.

Specific perils coverage is useful because the business can include specific perils in the policy, such as fires, theft or other natural disasters.

Instead of paying more money to include all listed perils, companies can pick the ones they feel are most useful to their particular situation.