All About Commercial Auto Insurance
When launching a new enterprise, it is important to factor commercial auto insurance into the cost of doing business. Proper coverage is a necessary business expense that deserves careful consideration.
It is vital to gain an overall understanding of commercial auto insurance and why it can play a vital role in a business.
What is Commercial Auto Insurance?
Commercial auto insurance is specialized coverage for the vehicles that businesses use. It provides protection from financial hardship if a company vehicle is involved in an accident.
Why Commercial Auto Insurance is Important for Businesses With Vehicles
Businesses need commercial auto insurance to protect themselves from losses that could hinder or even force the closure of the business.
For example, imagine an employee is involved in an accident while delivering supplies in a company truck. If the company didn't have the proper commercial insurance, they would have to pay for the driver's medical bills and loss of income. The injuries could be extensive requiring delicate surgery and long-term rehabilitation.
Meanwhile, they could also face lawsuits by the people in the vehicle the driver struck. The owner of the other vehicle will file a claim for repair or replacement of their vehicle.
How Commercial Auto Insurance Differs from Personal Auto Insurance
Personal auto insurance won't protect an individual who is operating a vehicle for business purposes. Personal auto insurance is designed to help defray the costs of lesser accidents than those generally experienced by commercial vehicles.
Because an accident involving one or more commercial vehicles is likely to cause more damage, the liability limits for business vehicles are generally higher than those for personal auto insurance. The liability limit refers to how much the insurance company is willing to pay when a claim is filed.
Liability insurance would cover accidents involving both bodily injury and property damage. So, the driver and those he injured would receive payment along with the owners of any property damaged by the accident.
The bodily injury liability coverage takes into consideration any lingering injuries requiring complicated treatment. Property damage liability includes protection for any damaged vehicles as well as damaged fixtures, such as signs, posts, and fences.
It's critical for a business to consider purchasing as much liability insurance as they can afford. Why?
If a business opts for a lesser amount than they are likely to need, they could find themselves in financial and legal trouble. Once their insurer has paid its agreed-upon liability limit, they are then held responsible for paying the remainder of the medical fees, vehicle repair bills, and property repair costs.
Who Needs Commercial Auto Insurance?
In general, businesses using vehicles for authorized company assignments need the proper commercial auto insurance. Delivery services need coverage. So do trucking firms and construction companies.
Often the company owns the vehicles, but that's not necessary. The cars and trucks could also be leased or rented. Independent contractors also need insurance.
Types of Commercial Auto Insurance Coverage
Businesses will likely need a combination of several of the following types of coverage. Needs change as businesses grow.
Liability Coverage: Covers accidents causing harm to both people and property.
Collision Coverage: Covers damage to the company vehicle in the event of a collision.
Comprehensive Coverage: Offers additional protection from incidents, such as theft, vandalism, and natural disasters.
Uninsured and Underinsured Motorist Coverage: Will help pay for the costs of the injuries and damage suffered at the hands of those not carrying the needed amount of insurance.
Medical Payments Coverage: will pay the medical expenses of the driver and passengers in the company vehicle.
Hired and Non-Owned Vehicle Coverage: Comes in handy when the firm uses vehicles it doesn't own to conduct business, such as leased, rented, hired, or borrowed cars and trucks.
Factors That Affect Cost
Commercial auto insurance will vary in cost according to several factors, including the type of vehicle, such as a van, pickup truck, or semi-trailer. The production year of the vehicle and its make and model. Typically, insurance for a new vehicle costs more than that for an older vehicle.
Insurers also consider the way the vehicle is used. Is it transporting clients, carrying workers to a job site, or delivering goods? Other factors include the size of the vehicle and its weight.
Number of vehicles and quality of drivers
The number of vehicles in a fleet will affect premiums. Obviously, a company would pay more for 20 vehicles than 10. However, they may save money on a cost-per-vehicle basis as insurers are likely to offer a discount.
It pays to screen drivers carefully. A poor driver's history can increase insurance costs. It helps to have an experienced driver.
Location
As a general rule, insurance premiums for vehicles used in an urban environment are higher than those for vehicles in a rural setting. The greater the traffic density the more likelihood of an accident.
Deductible and coverage limits chosen
Insurers will offer the possibility of increasing coverage far beyond the state minimum. How much of an increase a business chooses will obviously increase the costs.
Business type and industry risk level
Some businesses represent more of a risk than others. A typical example is a firm that hauls hazardous materials to high-security locations versus a company that delivers shelf-stable snack food items to grocery stores.
Benefits of Commercial Auto Insurance
Accidents can happen to anyone so it's vital to be prepared when it happens. Operating a business while underinsured places a company at risk. The proper amount of coverage could allow it to keep functioning as normally.
If a company vehicle causes an accident, someone will file a third-party claim. A third-party claim is a legal description of the demand an injured party makes from the business’s insurance company.
It's called a third-party claim because the injured person is an outsider. The insurance company and the business are the first and second parties in the business relationship. Someone outside of that relationship is referred to as a third party.
How to Choose the Right Commercial Auto Insurance
How often are the vehicles on the road? What do they carry?
Tips for business owners:
- Take time to compare policies and coverage options. Make sure that you're getting exactly what you need. Review the paperwork and ask questions until you clearly understand a policy's exclusions and limits. Otherwise, you could be shocked to discover your policy doesn't cover a specific event.
- You also want to evaluate your need for more than the state minimum requirement. The state's mandatory coverage is a regulation to protect the average business. However, no business is truly average.
- You'll want to increase your coverage until it meets your specific demands. Working with an insurance broker can help you tailor-make your policy.
Claims Process for Commercial Auto Insurance
There are several crucial steps to take after an auto accident.
- Stay at the accident site
- Call 911 to request the police and if needed an ambulance
- Do not discuss the accident with people in other vehicles or onlookers
- Gather contact information from everyone involved
- Use your phone to take pictures and videos of the site and the vehicles from different angles
- Always visit the hospital or your personal doctor immediately for an examination
- Report the accident to your insurer
Filing a Claim and What to Expect
Most insurers have a website where an online claim can be filed. Individual assistance can be provided by contacting the insurance company and requesting help.
An insurance adjuster will investigate the claim. The adjuster will review the case, ask questions of the various parties involved, and examine the damages.
The adjuster's evaluation will determine the business’s payout. In most cases, the payment will be enough to repair the vehicle. On the other hand, if the adjuster declares the car or truck to be a total loss, the business will receive the current market value of the vehicle.
If the business’s driver is at fault, the most common challenge to the claim will be the payout. They will want to receive enough money from the insurer to put the car or truck back in operation as soon as possible.
If the other driver is at fault, the business can expect the at-fault driver's insurance company to question the medical assessment and damage claim.
Tips for Reducing Commercial Auto Insurance Costs
The primary action to reduce premium costs is to insist on hiring drivers with safe driving records. Businesses can go a step further by implementing driver safety programs and training to keep their employees' skills sharp.
Bundle Insurance Policies
Costs can be lowered by bundling insurance policies. Bundling refers to maintaining two or more policies with the same insurance company. The policies remain separate entities which can be individually canceled, but at least two parties need to be kept to maintain the discount.
Increase Deductibles
The higher the deductible, typically, the lower the premium. Before choosing a higher monthly payment, review of finances is crucial. It’s important to be certain that paying the deductible will not adversely affect the business. Will there be enough money on hand to pay the deductible multiple times if there was more than one accident within a fiscal year or quarter?
Other Possible Discounts
Insurers often discount costs if there is proof of good maintenance programs. Costs can also be lowered by investing in anti-theft devices. Insurance agents can advise on the specific devices insurers consider effective theft deterrents.
Legal Requirements and Compliance
Commercial auto insurance isn't optional in the U.S. Each state mandates that businesses using vehicles for work carry a specific minimum amount of insurance.
States have the right to set their own regulations regarding the details, so the requirements can differ greatly in between neighboring states.
It's important to maintain at least the minimum coverage limits for the state otherwise, operation of the vehicle will be illegal.
States typically specify how much coverage must be carried for liability of injuries and property damage. For example, a state may have a 25/50/25 minimum. That means $25,000 per injured person with a total payout of $50,000 for all injured persons in the accident. Plus, there's $25,000 in coverage for damages to property.
There are split limit policies and combined single limit policies. Split policies specify the coverage for each injured party, another amount for all injured parties, and a third amount for damaged property.
Combined policies group everything together with one amount of coverage. The advantage of combined policies is the insurer can distribute the money as needed.
For example, Company A and Company B both have $1,000,000 in coverage. Company A's protection is separated into $250,000 for each injured person, $500,000 for all persons injured in the accident, and $250,000 for property damage.
In contrast, Company B has a combined policy of $1,000,000 in coverage. There are no specific amounts limited to either injuries or damage.
In two separate accidents, the companies are at fault. In both cases the medical bills amount to $800,000, but only one Company A has to pay out of pocket. It has to pay $300,000 because its policy only provides a total of $500,000 for injuries.
Penalties for Non-Compliance
Failure to comply with laws requiring commercial vehicle insurance can result in severe legal repercussions, including fines and penalties. Additionally, the future of a business could be in jeopardy if lawsuits require it to pay the medical fees and damages caused by an accident.
Conclusion
One of the best purchases a business will ever make is reliable commercial auto insurance. The proper coverage makes them legally capable of operating their vehicles in their state.
They no longer have to worry about an employee making a mistake on the road that could cost them the business. They have the necessary coverage to keep the business up and running.
Businesses rest easier and so do their employees. They know they're working for an employer who has their best interests in mind. Having good insurance can help attract top-level employees and keep the ones already employed.
The key is selecting the right policy for the business needs. Analyze how and why the company uses vehicles. Being honest about the risks the drivers face will help in the long run with claims and costs.
Consider speaking with an insurance broker for help choosing the right policy that will address concerns. Choosing the appropriate commercial auto insurance requires time and research. Proper protection and coverage is worth the time.
