If you provide company vehicles for your employees, you need adequate commercial auto insurance. Here’s everything small business owners need to know about insurance requirements for company vehicles.
Commercial auto insurance provides liability protection
Companies need commercial auto insurance because it provides liability protection if an employee is in a work-related accident. It protects insured vehicles used for business purposes and the employees driving them.
If you or one of your employees is found to be at fault in an auto accident, the other driver can file a lawsuit against your business. Your commercial auto insurance will cover damages up to the policy limit and any medical expenses for you or your employees.
Commercial vs. personal auto
A personal auto policy may cover occasional business use, like commuting or running errands. But if your driving activity increases your risk exposure, your insurer may deny a claim without commercial coverage. In general, you’ll need commercial auto insurance if:
- Your business owns or leases vehicles.
- Employees regularly drive for work-related tasks.
- You transport goods or equipment.
- Vehicles are registered under your business name.
- You exceed typical personal-use mileage or risk levels.
Failing to carry adequate commercial auto insurance could result in hefty fines, leaving your business vulnerable to a lawsuit.
States regulate commercial auto insurance
Since commercial auto insurance is regulated by states, the exact requirements depend on your business location. Failing to carry adequate commercial auto insurance could result in hefty fines, leaving your business vulnerable to a lawsuit.
Every state, except Virginia and New Hampshire, requires commercial auto insurance for company vehicles. And every state requires you to compensate the other driver(s) if you or your employee causes the accident.
Before purchasing commercial auto insurance, make sure it meets the state’s minimum requirements for bodily injury and property damage. A licensed insurance agent can help determine your requirements.
Costs can vary depending on your business
According to Insureon, the median price for commercial auto insurance is $142 per month, though some businesses may pay less than $120 per month. The exact cost will depend on the following factors:
- Business size.
- Fleet size.
- Vehicle type.
- Number of employees.
- Coverage limits.
- Work-related driving risks.
Know your coverage limits
Commercial auto insurance policies use either a split limit or a combined single limit.
A combined single limit policy has one coverage limit for all damage or injuries sustained during the accident. Let’s say you’re involved in an accident that damages another vehicle and the other driver sustains a bodily injury. If you have a coverage limit of $250,000, that amount goes toward both the physical injuries and damages related to the accident.
With a split limit policy, there are different coverage limits for bodily injuries per person and per accident and property damage. If you max out those coverage limits, your business could be liable for costs exceeding those limits.
Key add-ons to consider
Depending on your commercial auto coverage and the type of work-related driving you or your employees do, you may need additional coverage like:
- Hired and non-owned auto insurance (HNOA): Commercial auto insurance only covers vehicles your business owns, while HNOA protects vehicles your company uses but doesn’t own, such as employees' personal vehicles or leased company vehicles.
- Cargo coverage: Protects any goods or materials you’re transporting from damage or theft. This addition may be especially important for delivery businesses or contractors transporting supplies between job sites.
- Tool and equipment coverage: If you store tools or equipment in your vehicles, this add-on can help pay to repair or replace those items if they’re stolen or damaged. Standard commercial auto policies typically don’t cover the contents inside your vehicle.
- Umbrella insurance: Provides extra liability protection beyond your existing policy’s coverage limits. If a claim exceeds your commercial auto coverage, an umbrella policy may cover the remaining costs and protect your business from significant financial loss.
How to lower your premiums
Commercial auto insurance can be expensive, but ways you can lower your costs include:
- Only hire experienced drivers: Even one problematic driver can significantly increase your insurance costs. Look for experienced drivers and check their motor vehicle records.
- Use telematics: Install telematics and GPS tracking to monitor the driver’s behavior, like speeding and harsh braking. That data can be used to encourage safe driving habits and demonstrate lower risk to your insurer.
- Safety policies: Implement ongoing driver safety training and set clear expectations about safe driving practices to reduce accidents.
- Bundle policies: Work with your insurer to bundle commercial auto coverage with other business policies and qualify for multipolicy discounts.
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