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The Importance Of Commercial Auto Insurance For Contractors

August 4, 2023

Picture of Cecilia De La Rosa

Cecilia De La Rosa

In the hustle of your daily business activities, auto insurance is probably not high on the list of priorities. Yet, most contractors use many vehicles to ensure that their employees, materials, and tools get to their job sites. The more vehicles you have on the road, and the more time they spend there, the greater the chance they could get into an accident or be damaged. Commercial auto insurance covers the cost of these potential accidents, helping contractors keep the focus on their business and avoid losses.

What is commercial auto insurance?

Commercial auto insurance provides coverage for vehicles used for business purposes. Vehicles can be owned, leased, or rented, and driven by the business owner or one of their employees. Coverage is provided for cars, trucks, trailers, vans, and other vehicles designed for use on public roads. Since contractors spend a lot of their time driving between job sites and delivering materials and tools, they often need to purchase a commercial auto insurance policy to cover their vehicles and passengers.

There are four main types of auto insurance that are offered under a commercial auto policy:

  1. Liability insurance – Similar to the liability insurance you carry for your personal vehicle, this coverage protects you from costs due to injuries, vehicle or property damage, and in some cases legal fees. In most states this coverage is required for any vehicle on the road.
  2. Medical insurance – This coverage protects drivers and passengers from having to pay medical expenses due to an accident.
  3. Uninsured motorist insurance – This coverage protects you from having to cover costs for an accident caused by a driver that does not have auto insurance.
  4. Comprehensive/collision insurance – Protects you from paying for vehicle damage caused by theft, vandalism, flood, fire, or being hit by an object or another vehicle.
  5. Non-owned vehicle insurance – Covers employees who drive their own vehicles for business purposes. Provides damage and injury coverage, similar to liability insurance.

Coverage limits and deductibles can be customized to fit your needs. You can vary the coverage on each vehicle depending on its features and value. In most cases you must provide liability insurance for each vehicle you operate, but you can choose to purchase comprehensive/collision coverage only on newer vehicles or those that may require expensive repairs.

You can extend coverage by purchasing a business umbrella policy. Once the limit is reached on your auto policy, the umbrella policy kicks in and provides additional benefits.

What does commercial auto insurance cover?

Commercial auto insurance provides coverage for:

  • Accident-related expenses, including injuries, deaths, or vehicle or property damage
  • Theft/vandalism (under comprehensive coverage)
  • Fire
  • Vehicles hit by objects

It’s important for contractors to note that commercial auto coverage does not cover materials, tools, or equipment being transported. To provide coverage for these types of losses, you’ll need property, inland marine, or builders risk insurance.

Differences between personal and commercial auto insurance

While personal and commercial auto insurance both provide coverage for similar losses, there are some differences between the policy types. Their differences include higher limits, coverage for rental vehicles, and coverage for employees when driving their personal vehicles for business purposes.

Generally, commercial auto policies will carry a higher limit to the damages they’ll pay. According to the Insurance Information Institute, most insurers recommend $1 million in coverage for a standard commercial insurance policy. This limit applies to all vehicles covered by the policy.

Commercial auto policies will provide coverage for vehicles rented for business purposes. This includes vehicles like pickup trucks, box trucks, and other commercial vehicles. This coverage is not provided through a personal auto insurance policy.

Finally, commercial coverage extends to employees who are driving their personal vehicles to conduct business. For example, if your office manager is on the way to the bank to make a deposit for the business and gets in an accident, the company’s commercial auto policy will cover any damages or injuries.

Is commercial auto insurance required?

To determine if your company needs to purchase a commercial auto insurance policy, answer the following questions:

  1. Does the business own, lease, or rent vehicles?
  2. Are those vehicles driven by you or your employees?
  3. Are your vehicles primarily used for work purposes?
  4. Do employees use their personal vehicles for work purposes (errands, travel between sites, deliver materials)?

If you answered yes to one or more of the questions above, you should look into purchasing commercial auto insurance. Personal insurance may provide some coverage in extenuating circumstances, but it won’t provide coverage for the situations above. Check with your insurance company or agent to make sure you know exactly when you are covered.

How much commercial auto coverage should you buy?

As was mentioned above, insurers recommend a minimum of $1 million in auto liability insurance. In most states, companies are required to provide higher coverage limits than with a personal policy. That’s because commercial vehicles pose a greater risk because of the amount of time they’re on the road and the increased number of vehicles.

The amount of collision and comprehensive insurance you should purchase will depend on several factors, including how many vehicles you are covering, the age of the vehicles, and their makes and models.

How much does commercial auto insurance cost?

The average price for commercial auto insurance is $147 per month or $1,762 annually. Your individual premium cost will vary by the insurance company and is based on your driving record, the record(s) of your employees, and the number and makes/models of vehicles you’ll be covering.

To keep costs down, consider these strategies:

  • Check the driving record of applicants before hiring them
  • Purchase your commercial auto policy with the same company you purchase other business insurance with
  • Pay the bill in full, instead of making monthly payments
  • Emphasize safe driving and keep your vehicles secure
  • Raise the deductible

Where to buy commercial auto insurance

Most large insurance companies that provide insurance for businesses will provide commercial auto insurance policies. In addition, there are some specialty providers that offer specialized policies for contractors. You can do a simple internet search or contact an insurance agent, who can provide quotes from several insurers and help you select the best one for your situation.