If your business owns or leases vehicles, you’ll need to insure those vehicles with Commercial Auto Insurance. Most states require minimum levels of auto liability insurance, and this important coverage can protect your company in the event of an accident involving your business vehicles.
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What is commercial auto insurance?
Commercial auto insurance protects the vehicles your company owns or leases and the passengers inside them in the event of an accident. It also provides protection for vehicles owned personally but used for certain business purposes.
Commercial auto insurance has both liability and property components. The liability component protects your business if it is at fault for causing a crash, and causes bodily injury or damages someone else’s vehicle or property. The property component of commercial auto insurance protects the value of your vehicle against crashes, theft, and other perils.
- You own a janitorial service company, and one of your employees is out on a job with one of your company vans. On the way to a client’s offices, your employee runs a red light, crashing into another moving vehicle. The other driver is badly injured, requiring medical treatment. Your commercial auto insurance would cover damages to the vehicles, as well as medical costs for the injured driver.
Commercial auto insurance can cover cars, SUVs, light trucks, and vans used for business purposes. It can also cover large trucks, which are normally excluded from personal auto policies, including box trucks, food trucks, service utility trucks, and trailers. Commercial auto insurance is available for small businesses with single vehicles up to businesses with large fleets of vehicles.
Who needs commercial auto insurance?
Your business needs commercial auto insurance if it owns or leases vehicles titled in the name of the business. Most states require every vehicle registered in the state to have minimum levels of liability insurance. In addition, some states also require coverage for uninsured and underinsured motorists. Collision and comprehensive coverages are optional.
If you are a business owner, 1099 contract worker, or even an employee, you may need commercial auto insurance for vehicles owned, leased, or titled in your personal name if the vehicle is:
- Used for business purposes such as visiting job sites, transporting clients, or carrying work tools
- Driven by employees, co-workers, clients, or volunteers
- Used to transport goods or passengers for a fee (including ridesharing services)
- A dump truck, box truck, food truck, or other large truck, or a cargo or work van
Commercial auto insurance does not cover employees who drive their personal cars for business purposes. Businesses who have employees driving personal cars for business errands or who hire or rent vehicles for business use should purchase hired and non-owned auto insurance in addition to their commercial auto coverage. Hired and non-owned auto insurance is also available for companies that do not own vehicles or do not need commercial auto coverage.
What does commercial auto insurance cover?
Commercial auto insurance provides coverage for both liability and property. For vehicles that your business owns or leases, liability coverage is required for minimum amounts by most states. Property coverage protects the value of the vehicle your business owns or leases. If you have a lease or loan on your vehicle, the leasing company or bank may require you to have property coverage.
Commercial Auto Liability
The liability component of commercial auto insurance consists of bodily injury liability, property damage liability, and pollution cleanup. Commercial auto liability coverage protects your business if you or one of your employees causes injury or damage to another party while driving and are deemed to be at fault for the crash. The insurer will also help pay for the legal fees to defend your business in court.
Some insurance policies, rather than covering bodily injury and property damage separately, combine the two coverages together into a combined single limit liability coverage. Your coverage will either have both bodily injury liability and property damage liability, or only combined single limit liability.
Most states require all registered vehicles to have minimum bodily injury and property damage liability coverage.
Bodily injury liability provides coverage for your business if you or your employee is at fault for causing a crash that physically injures pedestrians, drivers, passengers in other vehicles, or passengers in your vehicle. Expenses covered include medical expenses, legal fees, loss of income, pain and suffering, and funeral costs.
Usually, there are separate limits “per person” and “per accident,” and the limits are usually expressed per person/per accident, such as: $100,000/$300,000. With these limits, the most the insurance company will pay to each injured person in a crash is $100,000, and the most they will pay for all the people injured in the crash is $300,000.
- Your employee is driving a delivery truck owned by your business and crashes into another car. Your employee is deemed to be at fault for the accident. The four occupants of the other vehicle are seriously injured and sue your business. The insurer will pay up to $100,000 in damages to each of the occupants, with a maximum of $300,000 total paid out.
You can choose your limits of liability, with higher limits requiring higher premiums.
Property damage liability provides coverage if you are at fault for a crash while driving and damage others’ property. The property can be another vehicle or any other property, such as a building or fence.
- An employee takes the company car out for a supply run. While driving, he hits another vehicle and is at fault for the crash. Property damage liability would cover the costs to repair the other vehicle’s damage, up to the limit of property damage liability.
Combined single limit (CSL) liability is offered by some insurance companies instead of separate bodily injury and property damage liability. For example, if a policy has a combined single limit of $500,000, that is the maximum the insurer will pay for all bodily injury and physical damage claims combined.
Though commercial auto liability will cover most instances of bodily injury or property damage, the costly nature of auto accidents means that insurance companies must make notable exclusions. While you may not be able to receive coverage for some of these exceptions through your commercial auto liability insurance, there are often other avenues for coverage, including through other insurance types like general liability insurance or adding on specific protections via endorsements.
Pollution cleanup coverage provides funds for cleanup costs if you or your employee is at fault in an accident that causes the covered vehicle to leak pollutants. This coverage only applies in situations where property damage or bodily injury covered by the policy has occurred. It covers pollutants that are part of the vehicle’s normal operation, such as gasoline, motor oil, or coolant. Pollution cleanup coverage also applies in situations where pollutants are released due to a covered vehicle damaging, upsetting, or overturning a container holding the pollutants.
- An employee at your HVAC repair company has just completed a job at a client’s home. As he is backing out of the driveway with the company van, he accidentally runs over a small metal lawn sculpture. The sculpture punctures the van’s gas tank, leaking gasoline onto the driveway and yard. The cleanup costs for the gasoline would be covered by your Commerical Auto Insurance policy.
Commercial Auto Property
The property component of commercial auto insurance, also known as physical damage coverage, protects the value of your vehicle. There are two coverages: collision and comprehensive.
Collision coverage pays for physical and mechanical damage to your vehicle when it hits or is hit by an object or another vehicle.
- Your employee takes the company car out to a client’s offices for a meeting. On the way, he rear-ends another vehicle at a stop light. Your collision coverage will pay for the costs to repair the company car.
Comprehensive coverage pays for any losses to your covered vehicles that are not covered by collision coverage. This may include theft, vandalism, falling objects, fire, glass breakage, and flooding.
- Your company sedan is stolen from the parking lot. After a few weeks, the police find your car at the bottom of a nearby ravine. The car is a total loss. Your comprehensive coverage will pay for the value of your vehicle before it was stolen.
Specified causes of loss coverage is a more limited version of comprehensive coverage. This coverage specifies the risks covered, rather than offering broad, all-risks coverage, and it is also generally less expensive, given the narrower scope of coverage. Covered causes of loss typically include theft, fire, explosion, lightning, windstorm, hail, earthquake, flood, and vandalism.
Uninsured and Underinsured Motorist Coverage
Uninsured and underinsured motorist coverage is required in some states. This coverage can be added as an endorsement to your commercial auto policy and protects your company if one of your employees is involved in an accident with an uninsured or underinsured motorist.
Uninsured Motorist Coverage
Although it is against the law in most states, some people drive vehicles without obtaining the required insurance. Another vehicle without insurance may crash into your company-owned vehicle, causing injuries to your driver and other passengers. Even though the other vehicle is at fault, since they don’t have insurance, there may not be money to pay for the injuries to the occupants of your vehicle.
Uninsured motorist coverage exists to cover this risk. In the event the other vehicle doesn’t have insurance, your uninsured motorist coverage will pay for the injuries to your driver and passengers.
Underinsured Motorist Coverage
Most states require low minimum required amounts of liability insurance, such as $50,000 per accident. In serious crashes where your driver is not at fault, this amount may not be sufficient to pay for all the medical expenses for your driver and passengers, which may exceed hundreds of thousands of dollars.
Underinsured motorist coverage will cover the expenses for bodily injury that exceed the limits of the other driver’s insurance.
Medical Payments Coverage
Medical payments is a no-fault coverage, which provides payments for any medical and funeral expenses for the driver of your vehicle as well as any passengers in your vehicle. It pays out regardless of who is at fault for the crash. Medical payments coverage usually has a lower limit of liability, which is around $10,000-$30,000. This coverage can be added to a commercial auto insurance policy through an endorsement.
What are the key exclusions to commercial auto insurance?
Commercial auto insurance covers most instances of bodily injury and property damage, but there are a number of key exclusions.
Common exclusions to liability coverage include:
- Expected or intended injury
- Pollution (this does not include pollutants that are vital to the operation of the vehicle, like gasoline or brake fluid)
- War, insurrection, or rebellion
Excluded causes of loss for physical damage coverage include:
- War or military action
- Nuclear hazard
- Racing, demolition contest, or stunting activity
- Wear and tear, freezing, mechanical or electrical breakdown
- Blowouts, punctures, or other road damage to tires
- Diminution in value
How much does commercial auto insurance cost?
The average cost of commercial auto insurance in the U.S. for small businesses is $1,916 per year or $160 per month to cover a single vehicle. However, the premiums for a commercial auto insurance policy can vary widely and depend on a number of factors. While most small businesses will pay less than $2,000 per vehicle per year, there is a great deal of variance.
Factors that may influence your premium include:
- Number of vehicles
- Make, model, and age of vehicles,
- Cost of vehicles
- Primary use of vehicles
- Driving history
- Claims history
- Policy limits and deductibles
The table below shows the average cost of commercial auto insurance for several common types of business use of commercial vehicles.
|Vehicle Type||Average Cost|
For many businesses, a minimum of $500,000-$1 million in commercial auto liability is appropriate. To supplement this liability, a commercial umbrella policy may also be appropriate to provide strong protection for your business.
Compare Commercial Auto Insurance Quotes
There are a variety of insurers and brokers in the market, and it may be difficult sorting through all of the coverage options. AdvisorSmith analyzed a variety of commercial auto policies and determined the best commercial auto insurance companies for small businesses. To determine the best commercial auto insurers, AdvisorSmith considered a number of factors, including financial strength ratings from AM Best and Standard & Poor’s, customer satisfaction data from several J.D. Power studies, complaint ratings from the National Association of Insurance Commissioners, available features and options, and availability of information and ease of use of the insurers’ websites.
» Read our full review of the best commercial auto insurance companies.
|1||Progressive Commercial||5.0 / 5.0|
|2||Liberty Mutual||4.9 / 5.0|
|3||The Hartford||4.7 / 5.0|
|4||Geico||4.7 / 5.0|
|5||Auto-Owners||4.6 / 5.0|
|6||Travelers||4.6 / 5.0|
|7||Erie Insurance||4.5 / 5.0|
|8||State Farm||4.5 / 5.0|
|9||Allstate||4.4 / 5.0|
|10||Cincinnati Financial Group||4.4 / 5.0|
|11||Chubb||4.4 / 5.0|
|12||Nationwide||4.4 / 5.0|
|13||Great American||4.2 / 5.0|
|14||Farmers Insurance||4.0 / 5.0|
|15||CNA||3.8 / 5.0|
|16||Hiscox||3.7 / 5.0|
Does personal auto insurance cover business errands?
It is common for a business to send its employees out on business errands, such as depositing a check or visiting a client. Most states require minimum liability coverage for all vehicles so your employee may already have liability insurance that covers their vehicle. However, as an employer, you have no control over the level of liability insurance that your employee carries, which in some states could be as low as $30,000-$50,000.
If your employee causes a crash while driving from the office to a worksite and causes serious injury to another driver, the other driver may sue your company. Since your employee was on the job at the time of the crash, your company may be responsible for the injured driver’s medical bills and lost pay due to the crash that exceeds your employee’s personal auto insurance limits.
- Your employee drives his personal car to pick up materials for a company tradeshow. He has personal auto liability coverage of $50,000, and he causes a crash resulting in $300,000 in damages. Your company could be responsible for the $250,000 of damages that exceed your employee’s insurance limits if you don’t have proper coverage.
If you commonly have employees driving on behalf of your business, you should purchase hired and non-owned auto coverage.
Hired and Non-Owned Auto Insurance
Hired and non-owned auto coverage is important for businesses that:
- Have employees who drive their personal vehicles for business purposes, such as driving to the post office
- Hire livery cars to pick up or drive around clients
- Send employees on business trips where they rent vehicles
This coverage supplements the existing liability insurance on these vehicles your business does not own. In cases of serious crashes, hired and non-owned auto can cover medical expenses and damage to other vehicles or property caused by the drivers that work for your company or who you have hired.
It’s important to note that hired and non-owned auto insurance does not cover commuting from home to work or any personal errands in vehicles your company does not own.
Commercial auto insurance is a critical coverage for any business that makes use of vehicles for business purposes. Whether you own or lease company vehicles, or if you have employees who use personal vehicles for business purposes, it’s important, and often required, to purchase commercial auto coverage. Car accidents are common events, and property damage and personal injuries can result in incredibly costly lawsuits and damages. Obtaining coverage for your business vehicles is a key part of managing your company’s business risks.
AdvisorSmith spoke with the following experts to provide critical insight on commercial auto insurance for business owners.
- Assistant Professor in Residence, Economics
- Bradley University
- Co-Director, Center for Risk Management and Insurance
- California State University, Northridge
Q. What can businesses do to lower their commercial auto insurance premiums?
Chigozie: Businesses can request coverage modifications (e.g., deductibles and policy or liability limits). Coverage modifications reduce the liability for the insurance companies, which translates into premium reductions for businesses. Examples of deductibles can include ordinary, disappearing, and franchise deductibles.
Maintaining a clean driving record. Insurance companies often run a motor vehicle report for all drivers with access to your commercial vehicles. Driving history has a large percentage impact on premium cost. A small moving violation can significantly affect your premiums.
Businesses can also request discounts (e.g., good driver discounts, accident forgiveness, pay your policy in full, commercial driver’s license, etc.).
David: Shopping around is tip number one. Usually, your agent or broker would shop for you, but be aware that prices vary dramatically, particularly for higher loss or higher risk accounts. A business with a history of claims may find it more difficult to secure coverage at a favorable premium.
Tip number two is to have a risk management program and to screen your drivers. You should have a safety program that trains your drivers and attempts to mitigate risk and losses through monitoring things like GPS location. You should also be screening your drivers and checking their loss history. Programs like these can get you better rates with your insurance company.
Keep in mind that new businesses or businesses with losses may have a real challenge in getting commercial auto. Some of these businesses may face an automatic declination from the standard insurance market. Those businesses will generally have to go to the excess and surplus lines market, and those insurers will charge significantly more.
Q. How should businesses think about balancing risk and affordability when it comes to commercial auto insurance?
Chigozie: Businesses can balance risk and affordability by selecting a policy that does not expose the business to a great deal of risk while maintaining some coverage modifications to reduce premium cost. For example, instead of getting liability insurance, the business can get comprehensive insurance with a $1,000 deductible. That way the business can save on premium cost and would have full coverage.
David: Just like balancing a budget, it’s a challenge. You may have certain levers that you can pull in terms of deductibles or coverage limits, while still maintaining something that actually protects your business.
There is a risk appetite choice that business owners have to make. You want to save some money, but how much? How much risk are you willing to accept for that savings?
Business owners can also choose a cheaper vehicle to insure. Or they can also choose not to insure the vehicle for collision, since liability coverage is what’s required, but that may depend on lender requirements if you are leasing or have a loan on the vehicle.
Q. How should business owners think about insuring a vehicle for business versus personal use, especially for sole proprietors?
Chigozie: For businesses, thinking about insuring a vehicle for business versus personal use can be confusing. Insuring a vehicle for a business would probably require commercial coverage, which in most cases is more expensive than personal coverage. However if the business is a sole proprietorship, and you own the vehicle, travel to few job sites per day, or use it for commuting, you might only need personal coverage.
If you are a sole proprietor thinking about commercial versus personal coverage, here are things to consider: Who owns the vehicle? How often is the vehicle used? And what is the type/weight of the vehicle. Note: If you require higher liability limits, personal coverage may not meet your needs, and you’ll have to go for commercial coverage.
David: So, for example, I have a consulting business on the side. I don’t use my car for it, but if I did, I’m supposed to advise my insurance company that my primary use of the vehicle is for business. Insurers will usually ask if your use of the vehicle is for pleasure or for business. If I were largely using the vehicle to drive to customers, I would need to advise my insurance company that my primary use was business.