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What is a commercial auto insurance policy?

Commercial auto policy

If you get into a car accident, you expect your auto insurance policy to protect you from financial loss. But if you're a business owner driving a company car, your personal auto insurance policy may not cover you. Luckily, a commercial auto insurance policy can pick up the slack.

There are a number of scenarios in which you'll need a commercial or business insurance policy. If your business owns, rents or leases vehicles, commercial insurance could protect the vehicles from theft or damage. If your employees regularly drive company cars, commercial insurance could pay medical bills if someone is hurt in an accident. Commercial insurance may even come in handy if you drive your personal vehicle in order to conduct company business.

If you have a personal auto insurance policy, then you're already somewhat familiar with commercial policies since they consist of many of the same types of coverage.

  • Liability coverage will pay for claims related to the bodily injury and property damage caused to others.
  • Collision and comprehensive coverage kicks in for losses related to the theft of a business vehicle or damage to a vehicle either from an accident or another cause, such as a hailstorm.
  • Personal injury protection, or PIP, takes care of a driver's medical expenses if he or she is injured in an accident.
  • Uninsured/underinsured motorist coverage protects you if you or your employees are in an accident caused by someone who is uninsured.

Buying the right amount

So how much commercial auto insurance do you need? Most states require all drivers to have some level of auto liability insurance. For example, in Iowa, drivers must have enough insurance to pay out $20,000 for bodily injuries per person, $40,000 for bodily injuries per accident and $15,000 for property damage per accident, says Chance McElhaney, spokesman for the Iowa Insurance Division. For commercial auto policies, the same minimum requirements apply -- although experts recommend that business owners buy more.  

Commercial insurance policies typically have what's known as a combined single limit, or CSL, which covers all bodily injury and property damage claims in an accident. The most common commercial automobile CSLs for small businesses are $500,000 and $1 million, according to the Insurance Information Institute. Some insurers have their own requirements. For example, Nationwide requires business owners to have a minimum of $100,000 in commercial liability coverage per vehicle, and recommends a minimum of $500,000.

When you purchase commercial auto insurance, you fill out a contract called a Business Auto Coverage Form (BACF) to indicate how much coverage you want. You can add one or multiple vehicles to the BACF and designate a different level of coverage for each one. For example, for a company vehicle that's driven every day, you might add more coverage than you would for a vehicle that spends most days in the company garage.

The cost of commercial business insurance varies depending on such factors as the number of cars being insured, the types of vehicles, the amount of liability insurance you buy and the driving records of the employees who will be driving your vehicles.

The average annual auto insurance premium in the U.S. for a vehicle that had liability, comprehensive and collision coverage in 2012 was $928, according to the National Association of Insurance Commissioners. Commercial auto insurance policies are typically sold with higher liability limits than personal policies, so they may cost more than some personal policies. However, since commercial auto insurance is a business expense, business owners may be able to deduct the cost come tax time.

Protecting personal cars

Even if your business doesn't own any vehicles, you might still benefit from a commercial automobile insurance policy. While a personal insurance policy will likely cover you if you only drive your car sporadically for work, you may need a business policy if you use your personal car primarily for business. When you estimate how many miles you typically drive for business compared to how many miles you typically drive for personal use, your insurer will be able to help you determine whether your personal auto insurance policy is sufficient.

Not only that, but if an employee gets into an accident in his own car while visiting a client, the business could possibly be found liable since the accident happened on company time.

To protect yourself in that situation, you could buy nonowned vehicle insurance. There are a number of different types:

  • Employer's nonownership coverage provides liability coverage for employees who must drive their personal vehicles to do company business from time to time.
  • Hired auto coverage offers liability coverage if you or your employees are driving a hired, rented, leased or borrowed vehicle when conducting company business.
  • 'Any auto coverage' is a type of insurance that ensures that any vehicle you buy during your policy period has the same liability coverage as the other vehicles listed on your policy. With this insurance, you don't have to worry about a lapse of coverage if you buy a new vehicle that hasn't officially been added to the policy.

A serious accident or the theft of an expensive company car can leave a business financially strapped. Commercial auto insurance will ensure your business stays on the road to success. 

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