When you buy a car, it's second nature to insure it by purchasing a personal auto insurance policy. But is this personal coverage sufficient if you drive around for business purposes? Even if your company doesn't own a fleet of delivery vehicles, that doesn't mean you can pass on commercial auto insurance.
So where do you start? With rising costs across the auto insurance industry and various types of coverage, finding an affordable policy that's the right fit for your business may require some legwork. But protecting your business in case a routine work-related errand takes a wrong turn can mean all the difference.
When do you need it?
If you are running a home-based business, for example, you may assume your personal auto insurance is enough, but this isn't always the case. Unfortunately there is no black and white answer that dictates when you need to buy a rider to your personal insurance policy to cover the business use of your car.
Talk with your insurance agent about how often you use the vehicle for work, and he or she should be able to help you decide what's best. If it turns out you need to add business coverage, you can expect to pay about 10 percent more than you are currently paying for your personal policy.
If your business owns a company car, however, there's no way around buying a commercial auto policy, which is meant to protect your business's assets in the event of an accident. This is an absolute must.
The gray area comes in when your employees use their personal vehicles for business purposes - even for something as simple as trips to the post office. If they get into an accident, their personal insurance will kick in, but anyone involved in the accident can also come after your business.
You need a hired and non-owned policy in this situation. It not only protects your business if your employee is involved in an accident on the way to a sales call, for example, but it will make your employees less apprehensive about using their personal cars for business, since they won't be held personally liable in case of an accident (and their personal auto policies won't be at risk). This type of policy will also cover cars rented for business use.
Depending on a number of factors - from what state you live in to the type of car your business owns - a commercial auto policy can cost more, or less, than your personal auto coverage. Keep in mind, however, that prices in the auto insurance industry overall are on the rise.
What does commercial auto coverage include?
There are a number of parts to a commercial auto insurance policy - some are required and others are just good to have, if you have the cash to pay for them. The more you add to your package, of course, the more expensive your premium.
Liability will be the biggest factor in your business auto policy when it comes to protecting your business. It can be broken down into two parts: bodily injury and property damage. Bodily injury liability (BIL) will protect your business from being sued for bodily injuries, lost wages, or even death by a person involved in an accident with one of your employees. Property damage liability will cover the cost of damages done to property and structures not owned by your employee or business in the event of an accident.
Medical payments is another part of a policy that is required by most states. If your employee is in an accident and the other person involved is hurt, it will cover the cost of treatments that person needs.
Although many states don't require collision and comprehensive insurance, it's good to have since it will protect your property. Collision will cover the cost of repairs for damage done to a company car in the event of an accident (most non-owned polices do not include collision). Comprehensive coverage takes effect if your car is broken into, vandalized, or damaged during a natural disaster.
Uninsured/Underinsured motorists coverage is still required by some states, but usually it's optional. This type of coverage gets tricky, but basically if you are involved in an accident with a driver who has inadequate insurance coverage, or none at all, this will kick in and cover damages and injuries.
Other extras include towing and rental reimbursement. This coverage doesn't include towing due to illegal parking, but if your disabled company car must be towed to a repair shop, it will cover that. And if you need to rent a car in the meantime, it will cover that cost.
How premiums are set
The cost of a business auto policy will depend on how much coverage you decide to get. Liability will be the most expensive part of the policy. Although your state usually sets a minimum that you need to have, it's most likely way below what you should have -- $1 million of liability is recommended. It's going to have to cover repairs to cars and hospital stays of injured persons - if this coverage amount falls short, coming up with the difference puts your business at risk.
Other aspects that affect cost are the location of your business (state as well as neighborhood), number of employees driving, whether you are insuring a company car or employees' cars, and the driving records of your employees.
Once you have a policy in place, the number of claims you file could raise your premium. Depending on all of these factors, you could have an annual premium per car that's as low as $200 (if you need just a hired or non-owned policy) or one that exceeds $2,000 (for a more comprehensive package).
Keeping your costs down
Compare quotes. Prices will range between insurance brokers. Make sure to get at least three quotes and compare before signing on the dotted line. And when comparing, know what your state requirements are.
Raise deductibles. If you can afford it, raise your deductibles. This will bring your premiums down. Just make sure you'll be able to afford those deductibles if you ever need to pay them. Most insurance companies will allow you to pay up to a $1,000 deductible for comprehensive and collision coverage.
Drop collision. If you do own company cars, drop collision coverage if repairs will end up costing more than the cars are worth.
Type of car. Choosing a company car that doesn't cost much to repair or is an older model can also lower your premiums.
Quote online. Comparison-shopping can be easier if you quote online. But once you have the quotes, it's in your best interest to purchase in person with a local agent rather than online. So if you do get into an accident, you will deal with someone face to face.
Find a small business auto insurance broker. There are agents that specialize in small business auto insurance - just look in the yellow pages. Since it's their specialty, they'll know the ins and outs of your small business's particular needs.
Be honest. When it comes time to discuss what packaged policy will be best for you, don't downplay how often you use your car for work. In the event of an accident, if your insurance agent investigates and finds out you weren't truthful about your use, your claim could be completely denied. So be sure to get the right amount of coverage.