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Why Do You Need Commercial Car Insurance?

Insurance Ranked - Updated January 18, 2023
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Why Do You Need Commercial Car Insurance?

Commercial car insurance offers coverage for vehicles that are owned and used by your business. That means that if a covered kind of damage is incurred, the insurance company will help you cover the expenses.

The basic protections offered by commercial car insurance are similar to those associated with personal auto insurance. However, there is a strong need for commercial car insurance even in cases where it isn’t legally required. It safeguards your business from liabilities, costly expenses, and lawsuits.

Let’s explore why you need commercial car insurance.

car-on-highway

Why do you need commercial car insurance?

To meet legal requirements

Legal requirements are a huge part of why it’s critical for businesses to purchase a commercial car insurance policy.

In most states, businesses that use vehicles for commercial purposes need to be adequately insured with the right commercial auto insurance policy. The minimum is usually to carry enough liability insurance.

To protect against financial loss

Vehicular repairs and replacement costs can add up to quite a large amount. Financial loss when a car crashes or gets damaged is a concern for organizations, especially companies on the smaller end.

If anyone has been injured, resulting in medical fees, the expenses can be even more significant.

Having a good commercial car insurance policy can help provide your business with valuable financial support in case of a vehicular accident.

To protect against liability

When an auto accident occurs, there is typically an investigation to see who is at fault. If your business is found at fault for the accident, then you might be held liable for any damages and injuries. The way liability and fault work may depend on what state your business operates in.

The average auto accident liability claim for bodily injury was $20,235 in 2020. As you can see, liability claims can be very costly for your business. Having commercial car insurance helps prevent your business from needing to pay these expenses out of pocket.

To meet contract requirements

If your business wants to carry out contract work or do business with another organization, you might be required to have a certain amount of commercial car insurance.

Liability is a serious concern for many businesses, and having adequate insurance can help you meet contract requirements and open up new business opportunities for you.

To protect against unexpected events

The chances of an auto accident involving a car your business owns or uses are not negligible. Other unexpected events that damage your vehicles can also occur, such as vandalism or extreme weather.

Having commercial car insurance gives your business protection against unexpected events and expenses.

To cover work-related driving tasks

In some businesses, employees need to drive the vehicles for work-related, relevant tasks. This may include situations such as:

  • Driving a client around
  • Going to a trade show or sales call
  • Bringing items to a shipper
  • Shopping for the business
  • Delivering food or publications
  • Taxi, limousine, or chauffeur service
  • Towing vehicles
  • Carrying hazardous, dangerous content (such as flammable materials)
  • Moving freight

truck-on-highway

What are examples of commercial car insurance claims?

Accidents

If your business’ vehicle has been involved in an accident, you can file a commercial car insurance claim seeking financial compensation to cover the costs of the damages or injuries. This may include costs for repairing the vehicle or replacing it entirely if it’s a total loss. Medical fees and treatment expenses may be covered by the claim as well.

Theft

Auto theft is a serious problem, especially in urban areas that are densely populated. If your business vehicle gets stolen, you can file a claim to cover the cost of replacing the vehicle.

Vandalism

If a business vehicle is vandalized, the business may file a commercial car insurance claim to cover the costs of repairing the damage.

Fire

Fire is a type of covered peril in some commercial car insurance policies. If your business vehicle gets damaged or even destroyed by a fire, a commercial car insurance claim may be able to cover your car replacement costs.

When do you not need commercial car insurance?

Your business has rare or no use at all of cars for commercial purposes

If your business practically never uses vehicles for commercial purposes, doesn’t own any vehicles, and doesn’t plan on having employees driving around, you probably don’t need commercial car insurance.

You’re a limited liability company or corporation

Another situation in which you might not need a commercial auto insurance policy is if your organization is considered a corporation or a limited liability company (LLC). If your employees are all shareholders or owners, you might find commercial car insurance coverage unnecessary. If personal vehicles are used in this case, each individual will be personally responsible for having their own insurance for these vehicles.

Sole proprietorship or partnership

If your business is considered a sole proprietorship or partnership, you might be fine without commercial auto insurance. If the business owner(s) do not use their personal vehicles for any business purposes, commercial auto insurance might not be necessary.

What does commercial auto insurance cover?

Your commercial auto insurance policy’s covered perils (AKA what situations for which you can file a claim for losses and damages) will vary depending on what insurer you choose.

The usual commercial car insurance policy is fairly similar to the standard personal car insurance policy.

This means that the typical commercial car insurance policy will likely provide coverage for liability, collisions, comprehensive damages, certain medical expenses, and uninsured/underinsured motorist coverage.

The difference is that commercial car insurance applies to vehicles that your organization leases, owns, hires, or otherwise uses.

Let’s go over what the types of coverage commercial auto insurance may offer.

Bodily injury liability coverage

If you are found at fault or need to pay legal defense fees for a bodily injury liability claim, your commercial car insurance policy might be able to cover expenses. Bodily injury claims may involve injury or death.

Property damage liability coverage

Another kind of liability coverage is for property damage. If you accidentally damage someone else’s property, this kind of liability coverage can really help you out.

For both kinds of liability coverage, legal counsel expenses tend to be covered, but there are some exceptions your policy may detail.

Medical payments coverage

No fault, personal injury, and medical payments coverage will provide you with the financial support your business needs regardless of who was at fault for an auto accident.

This kind of coverage can award you with a payout so you can afford expenses for the driver and/or passengers even if you are found at fault for a collision.

Uninsured motorist coverage

Sometimes, the other party in a car accident doesn’t have adequate insurance, if any auto insurance policy at all.

Uninsured (or underinsured) motorist coverage helps pay for injuries or damages in case the other, at-fault driver committed a hit and run or doesn’t have an insurance policy.

Collision coverage

Fairly straightforward, collision coverage provides financial protection in case your business’ vehicle gets damaged via collision with another vehicle or object.

Comprehensive physical damage coverage

A covered perils policy will list what kinds of perils are covered. If you purchase a commercial auto insurance policy that offers comprehensive coverage, it will usually cover perils such as:

  • Floods
  • Fire damage
  • Vandalism
  • Theft

yellow-toy-car

What kind of cars are covered in commercial car insurance?

Vehicles driven for commercial purposes often differ from ones driven for personal use.

When buying a commercial car insurance policy, it’s important to double check whether it meets your needs. The following vehicles are usually covered:

  • Food trucks
  • Work vans
  • Cars used commercially
  • Fleets of vehicles
  • And more

Regardless of whether your business vehicle is owned, rented, or leased, commercial car insurance should be able to offer useful coverage.

What is the minimum commercial car insurance I need?

In most states, owning vehicles requires that you also carry liability coverage.

If your business moves goods and products across state lines, it is also a federal law for you to at least carry commercial car liability insurance.

If your organization has cars licensed for commercial use, you should have commercial car insurance.

Do I need different commercial insurance for trucks?

Some trucks are built much larger than other commercial vehicles. If your business owns and operates large vehicles, you might want to consider procuring a commercial truck insurance policy so that you can get your vehicles adequately covered.

How does a commercial auto insurance claim work?

After a collision, fire, or another kind of covered peril, if you are found liable, the other party or parties involved can sue you. Your insurance company, after being notified, will cover your monetary losses up to a certain amount.

The upper limit of coverage in dollar amount depends on the policy you have bought. Generally, the cheaper the policy premium, the lower the coverage limits.

After the limit has been reached, your business will be responsible for the rest of the payment needs.

How much do I need to pay for commercial car insurance?

Like all insurance policies, a commercial car insurance policy will have its premium vary depending on your particular situation. In this case, the insurance company will be looking at several factors related to your business.

These factors are:

  • The size of your business
  • How many vehicles your business uses
  • What types of vehicles need insurance coverage
  • How many employees need to drive the vehicles
  • What is the driving risk assessment
  • Are there risks unique to your business or industry
  • How much coverage do you need, a high limit or a lower one

What are coverage add-ons I need for commercial car insurance?

Sometimes, a business needs more specialized coverage for their vehicles.

Optional coverage you might want to consider securing for your business include physical damage to hired/borrowed vehicles and lease/loan gaps.

Endorsements may also be available, which are essentially ways to personalize your business’ insurance coverage. This may include changing up your coverage limits, policy details, and more.

black-car-in-parking-lot

What does commercial car insurance exclude

Notable exclusions exist for commercial car insurance policies to protect the insurer from unreasonable claims.

If your circumstance involves any of the following, your insurance claim might get denied and you would have to pay out of pocket.

High risk activity or behavior

If the activities undertaken by your business workers are deemed too high risk, your insurance company is likely to reject the claim.

Expected or intentional injury

Many cases need to be accidental in order for the insurance company to accept a claim. If a worker was intentionally seeking to hurt themselves or a business owner ordered their subordinates to commit reckless behavior, you can expect coverage to not be given.

Pollution

If your business’ driver spills something such as a chemical while driving and it causes pollution, business auto insurance usually will not cover the pollutant’s resulting damages.

Vehicle racing

If there was a contest or race of some sort, coverage will usually be excluded. Even if it isn’t bodily injury and is only some property damage, racing elements will disqualify you from receiving coverage for this claim.

War

If there is anything combative such as a rebellion, insurrection, or warfare going on, coverage will not be given for damages to the commercial vehicle.

How much is the coverage limit for commercial auto insurance?

The limits for commercial coverage are often much higher than for personal auto coverage. You might expect your commercial auto coverage limit to be around $1 million USD.

insurance-policy-magnifying

How much do I need to pay for commercial auto coverage?

When shopping for commercial auto insurance, it’s essential to compare quotes. Companies may pay around $150 a month for commercial auto insurance.


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