Commercial auto insurance: What is it and what does it cover?

What does commercial auto insurance cover?

A basic commercial car insurance policy provides liability and physical damage insurance. Commercial auto liability coverage pays for injuries and property damage you or your employees cause to others in a car accident. Physical damage coverage pays to repair or replace a covered vehicle on the policy up to its actual cash value (ACV).

The average cost for a policy is about $150 per month, according to data from small-business insurance agency Insureon, but prices vary by vehicle, state and other factors.

Insurance companies offer additional optional coverages, including collision and comprehensive, which cover damages to your vehicles. And you can add to your policy with emergency road service, rental reimbursement and more.

How does commercial auto insurance work?

Commercial auto insurance works just like personal auto insurance, except the policies are for vehicles used for business, such as a company-owned truck or van. 

You purchase a policy from an insurance company, pay your premiums, and if something happens to your vehicle, such as a collision or damage from a storm, or if the person driving the vehicle causes damages or injuries to others, the insurance company will cover those injuries and damages up to the coverage limits of the policy you bought. 

There are no hard and fast rules on how much coverage you should have, but each state sets a minimum coverage requirement. Common limits are 25/50/25, meaning $25,000 for bodily injury per person, $50,000 for bodily injury per incident and $25,000 for property damage per incident. You need at least your state’s minimum coverage.

What types of vehicles are covered under commercial auto insurance? 

A commercial auto policy can cover different vehicles you use for your business, including:

• Vans
• Cars
• SUVs
• Pickup trucks
• Food trucks
• Box trucks
• Service utility vehicles
• Limousines
• Buses
• Trailers
• Semi-trucks

“A car titled to the business should always be insured under the company name on a commercial policy,” says Lisa Clickener, a commercial lines agent at the Spicer Hersch agency in Fairfax, Virginia. “Likewise, a car that is individually owned but regularly used for business purposes would be better insured under a commercial policy.”

Types of commercial auto insurance coverage

Several types of commercial auto coverage are provided in a standard policy, which works just like a personal auto insurance policy. A key difference is a commercial policy typically comes with higher liability limits to better protect your business.

• Liability insurance: Liability coverage includes bodily injury and property damage to others if you or your employed drivers cause an accident. Bodily injury liability coverage pays for their medical bills, rehabilitation and other expenses stemming from their injuries, including legal fees if you get sued. Property damage liability coverage pays for damage to their vehicle or property, like a fence, building, or utility pole.
• Medical payments: Also called MedPay, medical payments coverage pays for medical treatments and other medical expenses if your driver or passengers are injured, no matter who is at fault. It is required in some states.
• Personal injury protection: Some states offer personal injury protection (PIP) to cover medical expenses, lost wages and in-home care help for you, employed drivers or passengers who are injured in a car accident, regardless of fault. It is required in some states.
• Collision coverage: An optional coverage that will pay to fix or replace your work vehicles after a covered accident with another car, object, or a single-rollover accident, up to the vehicle’s value and minus your deductible.
• Comprehensive coverage: An optional coverage that will pay to repair or replace your company-owned vehicles, up to their value and minus your deductible, for non-collision incidents, such as animal damage, natural disasters, broken glass, fire, vandalism and theft.
• Uninsured/underinsured motorist coverage: This coverage is available in at-fault states and will pay for your property damage or injuries if someone hits you who doesn’t have insurance or enough liability insurance to cover your expenses. It is required by law in some states.

Though comprehensive and collision are optional, your lender may require them if you finance or lease your business vehicles.

Additional coverage options

Commercial auto insurance companies also offer add-on coverages to customize your policy to meet your specific business needs. Optional coverages vary by company and industry, but typically include:

• Rental reimbursement to cover a rental vehicle while one of your commercial vehicles is being repaired after a covered loss.
• Gap insurance covers the difference between your outstanding loan or lease balance and the actual cash value of your business vehicle when the insurance company deems it a total loss.
• Hired auto coverage extends your policy’s liability insurance to vehicles you hire, borrow or rent for business purposes.
• Non-owned auto extends your policy’s liability insurance to your employees’ personal vehicles when they use them for work-related purposes.
• Roadside assistance provides coverage if your work vehicles break down or need fuel, fluids, a tire change, battery jump-start or towing to the closest repair facility.

What commercial auto insurance does not cover

Commercial auto insurance generally doesn’t cover the following unless you have a specific endorsement or optional coverage that specifically includes it:

• Damage or theft of customer vehicles
• Your personal vehicle, unless you’re using it for business purposes
• Tools and equipment not permanently installed in your commercial vehicles
• Rental or non-owned vehicles
• Employee injuries unrelated to a covered car accident 

How to determine the right coverage for your business

Your business is as individual as you are, which is why it’s important to understand what commercial auto insurance covers and excludes to ensure you get the right coverage to protect your company assets.

Each state has requirements you must meet to drive legally, whether it’s a personal or work vehicle. However, state minimum requirements are typically not enough to adequately protect your business. Higher liability limits can protect your company’s finances if you or the company gets sued because of an accident.

With so many optional coverages available, it’s best to work with a knowledgeable and experienced commercial auto insurance agent. You and the agent can work together to determine which policy coverages and limits will best protect the company you’ve worked so hard to build. 

Some people prefer independent agents over captive agents. For example, State Farm agents are captive, meaning they can only offer State Farm policies and are limited to State Farm’s industry and profession limitations. Independent agents work with multiple insurance companies, allowing them to narrow down the right insurer and policy fit for your business.

Filing a claim under your commercial auto insurance coverage

The process of filing a commercial auto insurance claim is much the same as a personal insurance claim. Contact your insurance company to report the claim, and then work with your adjuster to reach a settlement agreement.

But note: Filing a claim can cause your commercial auto insurance rates to increase. The actual impact on your premium depends on factors like the type and severity of the accident, who was at fault and the cause of the accident.

If you or an employee were in a minor fender-bender with no injuries, it may be worth settling without filing a claim. It’s also a good idea to familiarize yourself with the steps to take before filing a claim to ensure you and your employees know what to do if an accident occurs.

It can take about 30 days to settle a claim once filed. However, it varies based on whose insurance company will pay, whether your work vehicle is totaled, and what happened, such as a stolen vehicle or hitting road debris.

It’s a good idea to speak with your agent about the pros and cons of filing a claim, your options and how the process will work to decide if filing a claim is worth the potential premium increase.

The bottom line

Commercial auto insurance protects business owners who own or lease vehicles for use in their business.