Auto insurance is an absolute necessity when it comes to driving a car, both legally and functionally. There are more than 6 million passenger car accidents every year in the US, and commercial car accidents are very close to that number as well. While accidents are already terrible, causing damage to your car and injuries to multiple people, when the accident is caused by a car used by a business, it could be worse, especially for the business for which the cars are being used.
Be it a small pizza delivery business of two or three cars or a large cargo moving business with a fleet of semi-trailers and other vehicles, if your business is properly registered and is a recognized business by law, you cannot operate the vehicles on general auto insurance policies. Car insurance companies won’t sell you the policies for commercial purposes.
Any business that uses cars as a part of it needs to get commercial auto insurance policies. This article will describe in detail everything you need to know about commercial auto insurance policies, when you need them, and what happens if you try to use general vehicle insurance for business use. Let’s get started.
Let’s say that you own a car that has general auto insurance coverage. This includes liability coverage, collision, comprehensive coverage, etc. In the terms and conditions of the auto insurance agreement, it is mentioned that since you are getting the policy for personal use, under no circumstance the policy will be valid for any sort of business use.
So not just operating the cars for your small business, insurance companies can consider even the smallest things as “business use”. Let’s say that you are driving your car and on a business call. If the car crashes during the call, car insurance companies have legal grounds to deny your insurance claim. Other possible uses include going to a business meeting, using it to make deliveries, dropping clients, etc.
Any sort of business use can and will be used against your claim. Personal auto insurance policies are just for personal uses; going to work, dropping kids to school, weekend drives, etc. While some occasional business use is understandable, if you are using the car for commercial purposes regularly, you should consider switching to commercial auto insurance.
You might be wondering, what makes commercial auto insurance so different from the general auto insurance? When it comes to the type of coverages, both commercial and general auto insurance policies are very similar. Both offer liability coverage, comprehensive coverage, and collision coverage. The main difference between them is the coverage limit.
When using a car for business use, the chances of an accident are much higher since the vehicle is used often, has to reach places on time, and sometimes there is a time constraint leading to distracted driving. All these possibilities translate well into statistics. Although the number of commercial vehicles is low compared to personal vehicles, the accidents they cause are relatively much higher.
Taking liability coverage as an example, there are three components of liability coverage. The first part is the insurance amount to cover the cost of medical treatments (bodily injury) of the individual driver, called bodily damage per person. The second part is the amount for covering the cost of medical treatment for everyone involved in the accident, called bodily injury per accident. The final part is called property damage coverage and it is for repairing the car or other properties damaged in the accident.
For personal car insurance coverage, this limit is usually not that high. States have different mandated minimum coverage limits and it is usually around 25/50/25, meaning bodily injury per person should be at least $25,000, bodily injury per accident should be at least $50,000, and property damage coverage should be at least $25,000.
Although this is the minimum amount your insurance has, it is better to have a higher coverage limit because road accidents are very expensive, and if your auto insurance policy is lacking, you’ll end up getting sued, and will have to pay the rest of the amount from your pocket. A good minimum coverage limit is 100/300/50.
Commercial car insurance comes with a coverage limit that is way more than personal insurance coverage limits. For example, commercial auto insurance has a coverage limit that crosses a million dollars. This is because when cars used for the business get in accidents, the business is sued, which results in higher insurance payouts.
Moreover, commercial car insurance policies rarely cover just one vehicle, rather they cover multiple cars and employees, which is another reason why they cost a lot. Other factors also play a big role in deciding the price of commercial car insurance policies.
Factors such as the scale and type of business, type of cars used, number of cars insured, employees’ driver’s records, etc are impactful factors in deciding the rates. The area plays an important role in determining the price as well. If you look for car insurance in Illinois, you’d get much cheaper rates compared to car insurance in New York because the number of business, operational cost, labor cost, and several accidents is higher in New York.
But no matter what the costs are, you must get commercial car insurance for your business and not general auto insurance. If your insurer finds out you are using general car insurance for commercial use, not only your insurance claim will be rejected, but your business will face legal action as well. It’s not something you’d want your business to be in.