How Commercial Auto Insurance Works

by Lucy Lazarony

Forbes Advisor

Friday July 23, 2021

Commercial auto insurance protects the cars, trucks and vans that you use when conducting your business. Whether your business fleet is big or small, you'll need to insure the vehicles that you use for business purposes.

Business vehicles can include company cars and commercial trucks and vans. Box trucks and food trucks are other examples of vehicles that can be covered by commercial auto insurance.

What is Commercial Auto Insurance?

Commercial auto insurance policies cover insurance amounts and usage that won't be covered under personal auto insurance policy.

If you are driving a car for business and get in an accident, your personal insurance company won't pay the claim.

Here are scenarios where you need a business auto insurance policy:

  • The car is solely used for work and is a company car
  • You transport goods or people in your car, van or truck for work
  • You conduct a business service with your vehicle
  • You haul tools or equipment in a business vehicle
  • Your employees drive a business vehicle
  • The truck or van is owned by the company
  • You need high liability insurance limits

    What Does Commercial Auto Insurance Cover?

    Similar to a personal auto insurance policy, commercial auto insurance provides coverage for things like liability, collision, comprehensive, medical payments, personal injury protection and uninsured motorists.

    But commercial auto insurance is different in who's eligible, coverage, exclusions and limits.

    Here's what a commercial auto policy can offer:

  • Bodily injury liability pays for injuries that you cause another person.
  • Property damage liability pays out if your vehicle damages another person's property and you're legally responsible. As with bodily injury liability, property damage liability also pays for your legal defense if you're sued over the incident.
  • Combined single limit (CSL) liability insurance provides one overall limit for bodily injury and property damage claims against you rather than two separate limits.
  • Medical payments and personal injury protection (PIP) pay for medical expenses for you and the passengers in your car as a result of an accident covered by the policy. PIP is required in no-fault insurance states.
  • Collision insurance pays for damage to your own vehicle when it hits or gets hit by another car or object.
  • Comprehensive insurance will pay for damage to your vehicle from fire, flood, theft, vandalism and other specific problems.
  • Uninsured motorist (UM) coverage pays for injuries to you and/or your passengers if you're hit by an uninsured driver, or someone who has auto insurance but not enough to cover all your medical bills. In some states you can also buy UM coverage that pays for damage to your vehicle from an uninsured driver.

    Insurance for Tools and Equipment in a Commercial Vehicle

    Unattached tools and equipment in a commercial truck or van are not covered by commercial auto insurance because they are not considered part of the car. Tools and equipment can be covered for theft and damage under a business property insurance policy.

    Who Is Covered By Commercial Auto Insurance?

    A commercial auto insurance policy covers company employees, family members and others as drivers. If someone drives a commercial vehicle regularly, they should be added to the commercial auto insurance policy.

    What is Hired and Non-Owned Auto Insurance?

    A commercial auto insurance policy will not cover personal vehicles or rental vehicles that you use for work. But if you rent your work vehicle or employees sometimes use their personal cars for work errands, consider "hired and non-owned auto insurance."

    This coverage pays for liability claims against your business that involve a vehicle the business doesn't own. For example, if an employee causes a crash on the way to visit a worksite, the victims could potentially sue your business. Hired and non-owned auto insurance covers these situations.

    Farmers Launches Usage-Based Commercial Auto Insurance

    Farmers Insurance has launched new usage-based commercial auto insurance, FairMile, in Washington state. With the FairMile program, business owners will have the opportunity to choose per-mile insurance pricing. This could be especially useful for small business owners who don't use their work vehicles frequently or only seasonally.

    With FairMile, the premium is based on the actual miles driven in each business vehicle. Each month, premium adjustments are made to reflect actual miles driven.

    Customers who choose to enroll in FairMile will receive a telematics plug-in for each of their business vehicles. The FairMile program also includes the FairMile app, which contains mileage reports, detailed trip summaries and other data for drivers.

    In a survey of its business insurance customers, Farmers found that 33% were likely to use telematics technology and 75% said they would likely use telematics technology if it meant additional savings on their insurance policy.

    Tips for Buying Commercial Auto Insurance

    In the market for commercial auto insurance? Here are some buying tips from Dave Hynek, general manager of commercial lines marketing at Acuity Insurance.

    Get enough coverage. Make sure you have enough commercial auto insurance coverage to protect what you could potentially lose if there's an accident lawsuit against your business.

    "First, you will want to ensure that your policy covers the full scope of your exposure to protect your business and yourself—this includes limits and coverages," Hynek says.

    Talk to an agent. Don't hesitate to enlist the aid of an insurance agent. An agent can help you identify the right policy for your business, says Hynek, including specific commercial auto coverage for the type of work you do.

    Add uninsured/underinsured motorists coverage. Don't overlook this coverage in a commercial auto policy.

    "Uninsured/underinsured coverage helps you pay for damages caused by a driver who doesn't have auto insurance or has insufficient limits. If you're hurt or your truck is damaged in a crash caused by such a driver, this coverage will help pay for costs, up to the limits in your policy," Hynek says.

    Do research on the insurance company. Take time to do some digging about the insurance company you have in mind for your commercial auto insurance.

    "Many business owners make the mistake of thinking all insurance carriers are the same and only focus on price. While price is certainly part of the equation, business owners should review independent surveys or online review sites to see how well they perform when it counts," Hynek says.