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Do I Need Commercial Auto Coverage?
By Gregory Boop. Business Insurance Expert
Does your business need commercial auto coverage. Like many small business owners, you may assume that your personal auto policy affords all the coverage you need. You may also assume that your policy will protect you if you are involved in an accident while driving a vehicle you use for business. Neither assumption may be true.
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They may also lack some coverages that many businesses need. Moreover, the limits provided by a personal policy are likely to be inadequate for a business.
Here are some business-related exclusions that are commonly found in personal auto policies:
- Commercial Auto Exclusion Many policies exclude the use of a vehicle by someone employed or engaged in a business other than farming or ranching. This exclusion doesn t apply to a private passenger vehicle or to a small pickup or van not used for delivering or transporting goods and materials. Generally, a truck or van is small if it has a gross vehicle weight under 10,000 pounds.
- Auto Business Exclusion This exclusion applies to autos used in a business that involves selling, repairing, parking, storing or servicing autos. Examples are a dealership and a repair shop.
- Livery Exclusion Virtually all personal policies exclude the use of an auto (truck or private passenger type) for transporting people or property for a charge. Examples are taxis and vehicles used to deliver pizza or packages.
The commercial auto exclusion is open to interpretation. However, if you use a small truck or van for making deliveries to customers or for hauling tools to a job site you should seriously consider purchasing a commercial policy.
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The policy exclusions are only one aspect of a personal auto policy that can make the policy unsuitable for insuring a business. Here are some other things to consider:
- No Automatic Coverage A personal auto policy covers vehicles scheduled on the policy. It affords very limited coverage for newly acquired vehicles. In contrast, a business auto policy can easily be constructed to automatically cover any vehicle you obtain during the policy period.
- Limited Hired and Non-owned Auto Coverag e Personal auto policies provide limited coverage for autos you don t own, including those you rent. Under a business auto policy you can purchase broad coverage for both hired autos and non-owned vehicles. A business policy also covers loss of use expenses and transportation expenses. These coverages are not included in a personal auto policy.
- Less Flexibility A personal auto policy lacks the flexibility of a commercial policy. A business policy can be tailored to meet your needs through the use of covered auto symbols and endorsements .
- Not Designed for Businesses A personal auto policy is clearly designed to cover individuals, not business entities. It typically defines insured as the individual named in the declarations and that person s spouse and family members. Obviously, the terms spouse and family member s are not relevant to a business entity (other than a sole proprietorship).
Beside policy exclusions and limitations, you also need to consider your insurer s stance on insuring business risks. Each insurer has its own rules. You need to be aware of them before you buy a policy. not after you ve had an accident. Your insurer may be agreeable to covering some types of business-use autos but not others.
Note that most personal auto insurers will not issue a policy covering autos registered to a business (other than a sole proprietorship). If your vehicles are registered in the name of a corporation, partnership or other type of business entity you will need to purchase commercial auto coverage.
Most personal auto policies do not provide a liability limit that is adequate for a business. The maximum limit available from a personal auto insurer is typically $500,000. Commercial auto insurers, on the other hand, readily provide a $1,000,000 auto liability limit. Don t skimp on liability insurance! It is money well spent. A single accident involving a serious bodily injury could result in a huge liability claim against you. If you don t have adequate liability insurance, one claim could put your firm out of business.
Suppose your business is a sole proprietorship and you need to purchase a commercial auto policy. Can your family members be insured under your business policy? The answer is yes, they can be insured under a commercial policy via the Named Individual Insured Endorsement.