Last updated: October 2023
Are you a small business owner or manager with fewer than 500 employees? If so, you’re part of 33.2 million small businesses in the United States that employ more than 60 million people, according to the U.S. Small Business Administration.
If your business relies on a company vehicle (or vehicles!) to operate, having adequate commercial auto insurance coverage is just as important as the vehicle itself. A commercial auto insurance policy can help you safeguard the business you've worked so hard to build.
You may be familiar with auto insurance for your personal vehicle, but commercial auto insurance is a different ballgame. Understanding how commercial auto insurance works will help you make a more informed decision and secure the right coverage for your business.
This commercial car insurance guide dives into everything you need to know about this type of coverage, including common commercial car insurance terms, costs, and how it differs from personal auto insurance.
What is commercial auto insurance?
Commercial auto insurance protects your business from financial loss if a business vehicle is involved in an auto accident. It is essentially a contract between you and your insurance company. You agree to pay the premium amount, and your insurance company agrees to pay your losses, as outlined in your commercial auto policy.
Commercial auto insurance and personal auto insurance share some similarities, but there are some critical differences regarding coverage, exclusions, definitions, and limits. While there are some instances where a personal auto insurance policy may be enough for a small business owner who uses their car for work purposes, it's not always the case.
It's important to talk to your insurance agent to learn more about the differences between personal and commercial auto insurance to be sure to have the coverage you need.
Who qualifies for commercial auto insurance?
You may qualify for a commercial auto insurance policy if you use your vehicle to do activities related to your job or business other than commuting. In fact, you may be legally required to have commercial auto insurance coverage!
Can you answer "yes" to any of the following? If so, you might be eligible for a commercial auto policy.
- Do you use your vehicle to transport goods or people for a fee?
- Do you use your vehicle to conduct a service?
- Do you haul or tow a trailer that hauls a significant number of tools or equipment you use to run your business?
- Do your employees drive company-owned, leased, or rented vehicles?
- Are any of your vehicles registered or titled in the name of your business?
What kinds of vehicles are typically covered?
Commercial auto insurance covers many types of vehicles, depending on how they're used. These include:
- Food service vehicles, like food trucks and catering vans
- Vehicles used by plumbers, roofers, electricians, or landscapers
- Courtesy vehicles for repair shops, hotels, or restaurants
- Delivery vehicles for flowers, pizza, food, furniture, or other goods
- Funeral home vehicles like limousines, hearses, or escort vehicles
- Farming vehicles like pickup trucks, livestock trucks, or dump trucks
How long does commercial auto insurance coverage last?
Commercial auto insurance policies typically have terms of 6 or 12 months. However, individual policy terms and coverage may vary depending on the insurance company. Direct Auto Insurance offers competitive prices on policies with terms of 6 and 12 months.
What does commercial auto insurance cover?
Many states require commercial vehicles to carry a minimum amount of auto insurance coverage, just like personal vehicles. Additional insurance requirements could apply for vehicles that transport people for a fee, like limousines, or vehicles that transport hazardous materials.
In addition to carrying the minimum commercial auto coverages required by law in your state, you may choose to add optional coverages to your policy for more protection.
Direct Auto offers these commercial coverage options:
- Bodily Injury Liability & Property Damage Liability: These coverages can pay for damages to others up to your commercial auto insurance policy's limits if you or an insured driver causes an auto accident that results in bodily injury or property damage.
- Uninsured Motorist & Underinsured Motorist Bodily Injury: If you or an insured driver is involved in a hit-and-run or an auto accident caused by a driver who doesn't have liability insurance (or enough of it to completely cover your claim), these coverages can help pay for your medical and related expenses, up to the limits of your policy. Uninsured motorist and underinsured motorist bodily injury coverage are mandatory in many states. Some states also require you to carry uninsured motorist property damage coverage.
- Medical Payments Insurance: This optional coverage can help pay for medical, hospital, or funeral expenses incurred by an insured driver or passengers in a vehicle covered by your policy, regardless of who is at fault.
- Hired Auto & Employer's Non-Ownership Liability: This optional coverage can provide liability protection for a vehicle that is not owned or registered to the business (like when an employee drives their own car for business purposes) or if you're driving a hired, leased, rented, or borrowed vehicle.
- Collision Insurance: Collision insurance is an optional coverage that can help pay to repair or replace a commercial vehicle if it hits another object, overturns in an accident, or is damaged in a hit-and-run. There may be a deductible with this coverage.
- Comprehensive Insurance: This coverage can pay to replace a vehicle or repair physical damage to a vehicle damaged by specific circumstances, including theft, vandalism, and natural disaster. There may be a deductible with this optional coverage.
- Fire & Theft with Combined Additional Coverage (CAC): This optional coverage is a form of comprehensive insurance for certain types of heavy-duty trucks. Fire and theft with CAC can pay to repair or replace a vehicle damaged by specific circumstances, such as fire, theft, flood, earthquake, lightning, explosion, vandalism, collision with an animal, or damage that occurs while being transported by a third party.
Commercial Auto Insurance Terms and Definitions
Commercial auto insurance is not one-size-fits-all, so having the right protection is essential. Understanding these common commercial auto insurance terms can give you a better idea of your business's needs, plus what you can expect as you shop for commercial auto insurance with Direct Auto.
These are terms you may encounter while you're getting a quote for commercial auto insurance, whether you're getting a price over the phone or in-person at one of our many stores.
- Underwriting: The process by which the commercial auto insurance company determines whether it will approve your insurance application. During the underwriting process, an underwriter looks at the risks associated with insuring your business's vehicles. The underwriting process may also help determine your premium amount.
- Named Insured: The name of the business or person who owns the insurance policy. "Primary policyholder" is another commonly used term.
- Permissive User: Anyone driving a covered vehicle who has your permission to do so. If a permissive user is involved in an auto accident while driving, your insurance may provide the same coverage as if you were behind the wheel, but the coverage level will depend on your state.
- Fleet: Fleet vehicles are rated differently than non-fleet vehicles. This definition may vary depending on your state and insurance company, but in general, you may have a "fleet" if you have at least three passenger type vehicles. Some insurance companies require you to have at least five vehicles, while others only require two. Delivery services, construction companies, and taxi services are a few examples of industries that have fleet vehicles.
- Deductibles: Both commercial auto insurance policies and personal auto insurance policies can include coverage that requires a deductible. A deductible is the amount of money you would pay out-of-pocket upfront for the damage to your vehicle in the event of an auto accident.
- Policy Term: The length of time your policy is active. With Direct Auto, commercial policy terms are available for 6 and 12 months.
- Combined Single Limits (CSLs): Unlike most personal car insurance policies with individual limits for bodily injury and property damage liability, a commercial policy will generally have a combined single limit. The result is higher limits for both bodily injury and property damage coverages. The most common commercial auto CSLs for small businesses, according to the III, are $500,000 and $1,000,000, according to the Insurance Information Institute.
- Fire and Theft CAC: Fire and theft CAC applies to heavy trucks that sustain physical damage or loss due to specific circumstances, including fire, theft, vandalism, and others.
- Garaging Location: The place where the insured vehicle is primarily parked when you're not using it. This is usually your business address, but not always. For instance, you may park your delivery vans in a gated parking lot a few blocks away from your place of business.
- Gross Vehicle Weight (GVW): Some states have specific insurance requirements for business vehicles of a certain weight or type, which is why your insurance agent may ask you for the gross weight of your business vehicles. The GVW is the total weight capacity of a fully-loaded vehicle. The easiest way to find it is on the manufacturer's plate or in the owner's manual. Or, you can calculate it by adding the weight of the vehicle to the max weight of a load that could be carried by the vehicle.
- Temporary Substitute Auto: A temporary substitute auto is any vehicle used by the insured or an employee, with the owner's permission, as a substitute for an insured vehicle that is unavailable for regular use due to servicing, repairs, or loss.
You received your quote, discussed your coverages and limits with your agent, and are ready for your policy! These are the terms you may come across while reading through your commercial policy documents, chatting with your agent, or scanning email communications from your insurance company that may need some explanation.
- Declarations Page: This page is also called an auto insurance coverage summary provided by your commercial auto insurance company. It includes information about your policy, such as the types of coverage you've selected, the limit and cost for each coverage, vehicle information, and coverage related to specific vehicles on the policy.
- Endorsement: An endorsement is a policy change. It is an amendment or rider to a policy that adjusts the coverage or otherwise changes the general contract terms. For instance, say you decided to add medical payments coverage to your commercial policy after it was already bound. You would call or visit your insurance agent to request this change, and they would make an endorsement to your policy.
- Cancellation Request: The insured has the right to request cancellation of the commercial auto policy they own. Typical reasons for requesting cancellation of a commercial auto policy are: if the listed vehicles are destroyed, their titles have been transferred, or the insured has purchased another policy for all of the listed vehicles. Cancellation requests are usually required to be made in writing and must include the policy number and the insured's signature. After the initial underwriting period, an insurance company can typically only cancel a commercial auto policy for specific reasons described in state statutes.
Commercial Vs. Personal Auto Insurance
Meet Jim, the owner of a small landscaping and handyman business. Jim uses his truck to transport everything he needs to maintain his customer's lawns, including a mower, ladders, and a permanent toolbox.
One day, Jim is in a minor fender-bender on the way to a customer's home. He calls his car insurance company and gets some unfortunate news: his personal auto insurance policy won't cover his accident. Why? If you're a small business owner, you need to know!
How is personal auto insurance different from commercial?
Jim's personal auto insurance policy would likely not cover his claim for two reasons: 1) the way Jim uses his truck for his business is considered commercial use, not personal or pleasure use, and 2) Jim's truck hauls a significant number of tools and has permanent attachments (the ladder rack and toolbox) that he uses to conduct his services.
Knowing the differences between personal and commercial auto insurance could help you avoid an unfortunate situation like Jim's. Here are some critical differences to recognize as you learn more about these two types of insurance policies.
Coverages and Coverage Limits
Personal car insurance policies were created with the average driver in mind. However, commercial auto insurance policies are specifically for vehicles used for business-related purposes. They are designed to meet the unique needs of a business and are written and rated with these needs in mind. After all, business owners, large or small, have a lot at stake on the road. As such, coverages and coverage limits tend to be different for a commercial auto policy than a personal auto policy.
When you search for a commercial policy, you’ll likely recognize some of the same insurance lingo used for both types of policies. However, there might be some additional or slightly different options.
When you look at coverage limits, you’ll notice that commercial limits tend to be much higher. Also, instead of offering different limits for bodily injury and property damage, many commercial auto insurance companies offer one liability limit, dubbed a combined single limit, that covers both bodily injury and property damage claims. This limit can range anywhere from $100,000 to millions of dollars!
The Number of Drivers and Vehicles
Personal auto policies are generally intended to cover you as a primary driver and potentially other relatives who live in your household. Your personal policy can cover multiple drivers and cars, but typically no more than 5 of each. A commercial policy, on the other hand, is meant for a business that may need coverage for 10, 15, or more drivers (even if they only drive occasionally) and could be used to insure one car or a whole fleet of cars!
How the Policy is Written and Rated
Because commercial policies were created with different needs in mind, they’re written and rated differently than personal auto policies. The information you’ll be asked to provide for a quote may also vary. When getting your quote, it may be helpful to have the following info on hand to speed up the process: your personal information, a record of company insurance, information about the drivers in your company (driver’s license numbers included), a list of makes, models, and years of all company vehicles, and a description of how your vehicles are used like:
- Whether your vehicles transport hazardous materials
- Whether they transport people
- How far they are driven and how often
- How you and your employees use these vehicles
How much does commercial auto insurance cost?
The cost of a commercial auto insurance policy depends on several factors, including the business's size, the types of vehicles being insured, and the amount of coverage needed. Personal auto insurance policies tend to be cheaper than commercial auto policies as there are fewer vehicles, fewer drivers, and less risk associated with vehicle use.
As a small business owner, you always have an eye on the bottom line. By reducing your costs, you may be able to offer your customers better prices, increase your profits, and raise your employees' wages.
At Direct Auto, we love to help our customers save money. We're here to help you understand how you can better prepare and budget for commercial auto insurance – a necessary expense if your business involves vehicles. Keep reading to learn how much commercial auto insurance could cost your small business.
Factors that Can Influence a Commercial Auto Insurance Rate
Similar to a personal auto policy, many factors can impact your commercial auto insurance policy premium. The following list will give you a general idea of which elements influence commercial auto insurance rates – note that these factors may vary by insurance company, state, and business.
- Driving distance: The more you and your employees drive, the higher your risk for an auto accident. If your vehicle or fleet of vehicles is driven under a specific mileage annually, you could see a reduced premium. Fewer miles driven means less risk. For example, a flower delivery van that only delivers in one metropolitan area may cost less to insure than a van that delivers throughout an entire state.
- Driving location: That same flower delivery van may cost less to insure if it delivers flowers in rural Tennessee than if it delivers flowers in Dallas, Texas. Additionally, if your business operates in an area where there tend to be higher rates of crime, theft, or vandalism, your insurance rate may be higher than a business operating in an area with less crime.
- Amount and type of coverage: There are various commercial auto insurance coverages to choose from, from the basic (and often mandatory) coverages like bodily and property damage liability to optional coverages like permissive use and medical payments. The higher your coverage limits and the more coverages you select, the higher the cost. Additional insurance requirements may apply for vehicles that transport people for a fee, such as limousines, or vehicles that transport hazardous materials.
- The type of vehicle: Your vehicle may be more expensive to replace if it is newer, has more features, or more permanent attachments, like a toolbox. Factors like these are usually reflected in the cost of your commercial policy.
- How the vehicle is used: Insurance rates are generally lower for vehicles used for construction and farming. Vehicles that transport people tend to be slightly more expensive, and heavy-duty cargo vehicles that transport loads over 10,000 pounds tend to be the most costly to insure. As your business's liability risk goes up, so does the cost of coverage.
- The driving records of your operators: This may be one of the most significant factors when it comes to estimating the cost of commercial auto insurance, and for a couple of reasons. First, your insurance company may have specific underwriting guidelines for drivers operating heavy-duty trucks and tractor-trailers. Second, employees with poor driving records may cost you more to insure or prevent you from getting the insurance you need altogether.
How to Lower Your Commercial Auto Insurance Costs
While the cost of commercial auto insurance varies greatly depending on your business and the insurance company you choose, there are a few ways you could potentially reduce your rate:
- Choose a higher deductible. Usually, the higher the deductible you choose, the lower your premium will be for some coverages.
- Store your vehicles in a secure area. Parking your vehicles in a locked or secure area may prevent theft, which could help you qualify for lower premiums.
- Hire drivers with good driving records. Drivers with fewer violations tend to cost less to insure.
- Look for vehicles that are safe, reliable, and not too costly to repair. Safety features like airbags, a backup camera, and an automatic braking system could help lower your overall premium.
- Invest in GPS tracking of your vehicles. Your insurance company may offer a discount if your business has GPS tracking systems installed in its vehicles, as these systems could lower the chance of claims due to vehicle theft, improve driver's behavior, and discourage misuse.
Get a Free Quote for Commercial Auto Insurance
Still wondering whether you need or qualify for commercial auto insurance? Wondering how much a commercial policy will cost your business? Interested in getting a free quote?
At Direct Auto, our friendly and knowledgeable agents are here to walk you through every step of the quoting and purchasing process. We can help you understand how your quote is calculated, plus ways you may be able to lower your rate with discounts and flexible payment plans.
When getting a quote, it's helpful to have the driver's license numbers for all drivers and the VINs for all vehicles you are looking to insure. Visit a Direct Auto location near you or call 1-877-GO-DIRECT (1-877-463-4732) to get started.
*Commercial auto insurance produced by Direct General Insurance Agency, Inc. d/b/a Direct Auto Insurance as agents for other commercial underwriters. Not available in all stores. Pay plans, discounts, and coverages subject to terms and conditions.