construction workers talking through truck window
Many small business owners do not realize that personal vehicle insurance policies do not cover incidents that occur while performing business-related tasks. — Getty Images/JulieanneBirch

You’ve recently opened a small pizza restaurant. You hire an employee to make pizza deliveries using his own car. During a delivery run, your worker causes an auto accident that seriously injures the other driver. Your employee’s personal auto insurance provider only covers the first $50,000 in medical payments. So the injured driver sues your establishment to cover the bulk of the medical treatment—to the tune of $500,000. You didn’t have business vehicle insurance on your worker’s car, so you’re on the hook for a half million and forced to close down.

This cautionary tale serves as a sobering reminder to all small business owners: Operate without business vehicle insurance at your own peril. Because if a vehicle driven by you or an employee is used for business purposes—from visiting clients to running errands while on the clock—it likely won’t be covered by a personal auto policy.

[Read our full business insurance guide to learn about every type of insurance type your company needs.]

Avoid running on empty

Loretta Worters, spokesperson for the Insurance Information Institute, said a typical business auto policy protects you and your company from several driving-related dangers.

“It covers bodily injury and property damage to others, medical expenses for you and any third parties, and legal expenses if a lawsuit is brought against you due to an accident. It also provides comprehensive and collision coverage, uninsured and underinsured motorist coverage, and auto loan or lease coverage if your vehicle is a total loss after an accident,” she said.

Personal injury attorney Tina Willis with Tina Willis Law said every small business should have these coverages in place.

“This means any company that employs workers who do any driving as part of their work or for work-related purposes. This includes industries like construction, trucking, sales, deliveries, catering, and ridesharing, like Uber,” said Willis. “Some states require that individuals running a business have certain coverages, but the laws vary from state to state.”

Willis said many companies wrongfully believe that, when their employees are driving their own vehicles while on the job, the employees’ personal auto insurance policies will handle any vehicle-related claims.

“We were hired by an auto accident victim who had been injured in a taxi cab,” recalled Willis. “At first, the company tried to force us to go after the taxi driver’s auto policy, but the coverage limits were very low—$50,000. And we had a family with lost wages and medical bills worth over $1 million. Fortunately for the taxi company, they had $1 million in uninsured and underinsured motorist coverage,” she said.

It’s very important to understand how much coverage you actually need, and what exactly is covered and not covered by a business vehicle insurance policy.

Meloney Perry, attorney, Perry Law P.C.

Take cover behind the wheel

Consider the risks of not having sufficient business vehicle insurance coverages.

“Let’s say a small business owner is driving to meet a client when she is suddenly hit by another vehicle that runs a red light. Her car is totaled and she needs medical treatment. The other party doesn’t have insurance,” explained Shannan McMasters, commercial director with Mercury Insurance. “Unfortunately, the business owner’s uninsured motorist coverage is minimal and won’t be sufficient to cover all the medical bills and loss of earnings, leaving over $40,000 to be paid out of pocket.”

Or, assume you cause an auto accident while picking up supplies from your distributor. Both parties aren’t hurt, but your truck will be in the repair shop for a week. The bad news: That was your only vehicle and you didn’t purchase rental reimbursement coverage.

“To continue conducting important business during that week, you have to pay $160 to rent a truck not available until tomorrow, which means you also lost an important day’s worth of productivity,” McMasters said.

Protection in the proper amounts

To safeguard your small business, Jack Dowd, account executive with The Dowd Agencies, recommended at least the following coverage limits:

  • $1 million combined single limit bodily injury and property damage liability
  • $100,000/$300,000 uninsured and underinsured motorist
  • $5,000 medical payments
  • $1,000 comprehensive and collision deductibles, with towing and labor expenses included

"It’s very important to understand how much coverage you actually need, and what exactly is covered and not covered by a business vehicle insurance policy,” said attorney Meloney Perry of Perry Law P.C. “Consult closely with an insurance agent or broker and be sure you understand the language in the actual policy. Know which vehicles as well as employees and subcontractors are actually covered.”

Note that you can select different coverages for different vehicles used by your business, depending on the vehicle’s characteristics, scope of use and the coverage you need for it.

Lastly, plan to carefully vet any employees who will be using a company car or driving their own while on the clock. Employees with good driving records may net you a lower policy premium.

“Make sure they are good drivers who pay attention and don’t text while driving. There should be also be policies in place in your business on what is not acceptable driving behavior,” said Worters.

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