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What are the Commercial Auto Insurance Coverage Options?


If you own or operate a business that uses vehicles, you need commercial auto insurance. Commercial auto insurance protects your business from the financial consequences of accidents involving your vehicles and drivers. It covers the damages and injuries that you or your employees may cause to others, as well as the damages and injuries that you or your employees may suffer from others.

According to the National Highway Traffic Safety Administration (NHTSA), there were more than 5.8 million police-reported motor vehicle crashes in the US in 2019, resulting in more than 36,000 fatalities and 2.7 million injuries. The total economic cost of these crashes was estimated at $242 billion, including $57 billion in property damage and $35 billion in lost productivity.

Commercial auto insurance can help you avoid or reduce these costs by providing various types of coverage options. These options differ from personal auto insurance in terms of the limits, exclusions, and endorsements that apply to them. In this article, we will explain the main types of commercial auto insurance coverage options and how they work.

Liability Coverage

Liability coverage is the most basic and essential type of commercial auto insurance. It covers the legal liability that you or your employees may have in case of an accident involving a third party. A third party is anyone who is not you or your employee, such as another driver, a pedestrian, a cyclist, a property owner, etc.

Liability coverage consists of two components: bodily injury liability and property damage liability. Bodily injury liability covers the medical expenses, lost wages, pain and suffering, and legal fees that you or your employees may have to pay to a third party who is injured or killed in an accident caused by you or your employees. Property damage liability covers the repair or replacement costs, loss of use, and legal fees that you or your employees may have to pay to a third party whose property is damaged or destroyed in an accident caused by you or your employees.

Liability coverage is required by law in most states. The minimum liability limits vary by state, but they are usually expressed as three numbers separated by slashes, such as 25/50/25. The first number represents the maximum amount that the insurer will pay per person for bodily injury liability, the second number represents the maximum amount that the insurer will pay per accident for bodily injury liability, and the third number represents the maximum amount that the insurer will pay per accident for property damage liability. For example, 25/50/25 means that the insurer will pay up to $25,000 per person, up to $50,000 per accident, and up to $25,000 per accident for property damage liability.

However, these minimum limits may not be enough to cover the actual costs of a serious accident. If the damages and injuries exceed your liability limits, you will have to pay the difference out of your own pocket. This can put your business assets and income at risk. Therefore, it is advisable to purchase higher liability limits than the minimum required by law. The higher your liability limits, the more protection you have in case of a lawsuit.

Some examples of liability claims are:

  • You are driving a delivery truck and you rear-end another vehicle at a red light. The other driver suffers a whiplash injury and sues you for $30,000 in medical bills and lost wages. Your liability coverage pays for the other driver’s expenses up to your limit.
  • Your employee is driving a company car and he runs a stop sign and hits a pedestrian. The pedestrian suffers a broken leg and sues you for $50,000 in medical bills and pain and suffering. Your liability coverage pays for the pedestrian’s expenses up to your limit.
  • Your employee is driving a company van and he swerves to avoid a deer and crashes into a fence. The fence belongs to a nearby farm and it costs $10,000 to repair. The farm owner sues you for the property damage and loss of use. Your liability coverage pays for the farm owner’s expenses up to your limit.

Physical Damage Coverage

Physical damage coverage is another important type of commercial auto insurance. It covers the damage or loss of your own vehicles in case of an accident or other event. Unlike liability coverage, physical damage coverage is not required by law, but it may be required by your lender or lessor if you finance or lease your vehicles.

Physical damage coverage consists of two components: collision coverage and comprehensive coverage. Collision coverage covers the damage or loss of your vehicle due to a collision with another vehicle or object, such as a tree, a pole, or a guardrail. Comprehensive coverage covers the damage or loss of your vehicle due to any other event, such as fire, theft, vandalism, hail, flood, or animal strike.

The cost of physical damage coverage depends on several factors, such as the value, age, and condition of your vehicle, the deductible amount, and the depreciation rate. The deductible is the amount that you have to pay out of your own pocket before the insurer pays for the rest of the claim. The higher your deductible, the lower your premium. The depreciation is the decrease in the value of your vehicle over time due to wear and tear. The higher the depreciation rate, the lower the amount that the insurer will pay for your claim.

Some examples of physical damage claims are:

  • You are driving a company truck and you hit a pothole and damage the suspension. The repair cost is $5,000 and your deductible is $1,000. Your collision coverage pays for $4,000 of the repair cost.
  • Your employee is driving a company car and he parks it in a parking lot. When he returns, he finds that the car has been stolen. The car is worth $20,000 and your deductible is $2,000. Your comprehensive coverage pays for $18,000 of the loss.
  • Your employee is driving a company van and he encounters a hailstorm. The hail dents the roof and hood of the van. The repair cost is $3,000 and your deductible is $500. Your comprehensive coverage pays for $2,500 of the repair cost.

Uninsured/Underinsured Motorist Coverage

Uninsured/underinsured motorist coverage is another useful type of commercial auto insurance. It covers the damages and injuries that you or your employees may suffer from an accident involving a driver who has no or insufficient insurance. According to the Insurance Research Council (IRC), about 13% of drivers in the US were uninsured in 2019, and many more were underinsured.

Uninsured/underinsured motorist coverage consists of two components: uninsured motorist bodily injury and uninsured motorist property damage. Uninsured motorist bodily injury covers the medical expenses, lost wages, pain and suffering, and legal fees that you or your employees may have to pay to yourselves or each other if you are injured or killed in an accident caused by an uninsured driver. Uninsured motorist property damage covers the repair or replacement costs, loss of use, and legal fees that you or your employees may have to pay to yourselves or each other if your vehicles are damaged or destroyed in an accident caused by an uninsured driver.

Underinsured motorist coverage works similarly, but it applies when the at-fault driver has insurance, but not enough to cover the full extent of the damages and injuries. In that case, underinsured motorist coverage pays for the difference between the at-fault driver’s liability limit and your actual expenses.

Uninsured/underinsured motorist coverage is required by law in some states, but optional in others. The limits of uninsured/underinsured motorist coverage usually match the limits of your liability coverage, but they can be lower or higher depending on your preference. The benefits of having uninsured/underinsured motorist coverage are that it can protect you and your employees from the financial hardship and legal hassle of dealing with an uninsured or underinsured driver. The risks of not having uninsured/underinsured motorist coverage are that you and your employees may have to pay for your own expenses or sue the at-fault driver for compensation, which can be time-consuming and uncertain.

Some examples of uninsured/underinsured motorist claims are:

  • You are driving a company car and you are hit by another car that runs a red light. The other driver is uninsured and flees the scene. You suffer a concussion and a broken arm and your car is totaled. Your medical bills are $15,000 and your car is worth $10,000. Your uninsured motorist bodily injury coverage pays for your medical bills up to your limit and your uninsured motorist property damage coverage pays for your car up to your limit.
  • Your employee is driving a company truck and he is hit by another truck that makes an illegal turn. The other driver is underinsured and has a liability limit of 25/50/25. Your employee suffers a spinal cord injury and his truck is damaged beyond repair. His medical bills are $100,000 and his truck is worth $30,000. The other driver’s liability coverage pays for $25,000 of his medical bills and $25,000 of his truck. Your underinsured motorist bodily injury coverage pays for the remaining $75,000 of his medical bills and your underinsured motorist property damage coverage pays for the remaining $5,000 of his truck.

Medical Payments Coverage

Medical payments coverage is another optional type of commercial auto insurance. It covers the medical expenses that you or your employees may incur in case of an accident involving injuries to yourselves or your passengers, regardless of who is at fault. Medical payments coverage covers the medical expenses such as ambulance fees, hospital bills, surgery costs, medication costs, etc. It does not cover the lost wages, pain and suffering, or legal fees that may result from an injury.

Medical payments coverage differs from health insurance and workers’ compensation in several ways. Health insurance may have deductibles, co-payments, or exclusions that may limit or delay the coverage of your medical expenses. Workers’ compensation may only cover the injuries that occur during the course of your employment and may require you to prove that the injury was work-related. Medical payments coverage does not have these limitations or requirements and can provide immediate and supplemental coverage for your medical expenses.

The advantages of having medical payments coverage are that it can help you and your employees pay for your medical expenses without waiting for the liability claim to be settled or the health insurance or workers’ compensation to kick in. It can also cover the medical expenses of your passengers who may not have health insurance or workers’ compensation. The limitations of medical payments coverage are that it has a low limit, usually between $1,000 and $10,000 per person per accident, and that it does not cover the non-medical expenses that may result from an injury.

Some examples of medical payments claims are:

  • You are driving a company car and you hit a deer. You suffer a minor cut on your forehead and your passenger suffers a sprained ankle. Your medical bills are $500 and your passenger’s medical bills are $300. Your medical payments coverage pays for both of your medical bills up to your limit.
  • Your employee is driving a company van and he is rear-ended by another vehicle. He suffers a whiplash injury and his passenger suffers a broken rib. His medical bills are $2,000 and his passenger’s medical bills are $3,000. His medical payments coverage pays for both of their medical bills up to his limit.
  • Your employee is driving a company truck and he is hit by a drunk driver. He suffers a traumatic brain injury and his passenger suffers a spinal cord injury. His medical bills are $50,000 and his passenger’s medical bills are $100,000. His medical payments coverage pays for $10,000 of his medical bills and $10,000 of his passenger’s medical bills. The rest of their medical bills are covered by the drunk driver’s liability coverage, their health insurance, and their workers’ compensation.

Other Optional Coverages

In addition to the main types of commercial auto insurance coverage options that we have discussed, there are some other optional coverages that may be available for your business. These optional coverages may provide additional protection or convenience for your business in case of an accident or other event involving your vehicles. Some of these optional coverages are:

  • Rental reimbursement: This coverage pays for the cost of renting a substitute vehicle while your vehicle is being repaired or replaced due to a covered loss. It usually has a daily limit and a maximum limit, such as $50 per day and $1,500 per loss.
  • Towing and labor: This coverage pays for the cost of towing your vehicle to a repair shop or another location if it is disabled due to a covered loss. It also pays for the cost of labor for minor repairs at the place where your vehicle is disabled, such as changing a flat tire or jump-starting a battery.
  • Roadside assistance: This coverage provides 24/7 assistance for your vehicle if it is disabled due to a mechanical breakdown, a flat tire, a dead battery, a lockout, or a lack of fuel, oil, or water. It usually covers the cost of towing, jump-starting, changing a tire, delivering fuel, unlocking doors, or providing other services to get your vehicle back on the road.
  • Gap insurance: This coverage pays for the difference between the actual cash value of your vehicle and the amount that you owe on your loan or lease if your vehicle is totaled due to a covered loss. It can help you avoid paying for a vehicle that you no longer have.
  • And more: Depending on your insurer and your policy, you may have access to other optional coverages, such as custom equipment coverage, hired auto coverage, non-owned auto coverage, etc. These coverages may cover the damage or loss of special equipment or accessories that you add to your vehicle, the liability or physical damage that you incur while using a vehicle that you rent or borrow for business purposes, or the liability that you incur while using a vehicle that is owned by your employee or someone else for business purposes.

Each optional coverage covers different situations and has different benefits and costs. You should consult with your agent or insurer to find out what optional coverages are available for your business and how they can benefit you. You should also compare the availability and cost of each optional coverage among different insurers to find the best deal.

Some examples of situations where optional coverages may be useful are:

  • You are driving a company car and you are involved in a multi-vehicle pileup. Your car is severely damaged and it will take several weeks to repair. Your rental reimbursement coverage pays for the cost of renting another car for your business use while your car is being repaired.
  • Your employee is driving a company truck and he runs out of gas on a remote highway. He calls for roadside assistance and a service provider arrives within an hour to deliver some gas to his truck. Your roadside assistance coverage pays for the cost of the service.
  • Your employee is driving a company van and he hits a deer. The van is totaled and the actual cash value of the van is $15,000. However, you still owe $20,000 on your loan for the van. Your gap insurance coverage pays for the $5,000 difference between the value of the van and the amount that you owe.

Conclusion

Commercial auto insurance is an essential protection for businesses that use vehicles. It covers the damages and injuries that you or your employees may cause to others, as well as the damages and injuries that you or your employees may suffer from others. It also covers the damage or loss of your own vehicles in case of an accident or other event.

There are various types of commercial auto insurance coverage options that you can choose from, such as liability coverage, physical damage coverage, uninsured/underinsured motorist coverage, medical payments coverage, and other optional coverages. Each type of coverage covers different situations and has different benefits and costs. You should compare different coverage options and quotes from different insurers to find the best deal for your business.

Commercial auto insurance can help you avoid or reduce the financial consequences of accidents involving your vehicles and drivers. It can also help you comply with the state laws and regulations that apply to your business. However, commercial auto insurance is not a substitute for safe driving practices and risk management strategies. You should always maintain a good driving record, choose a safe vehicle, install safety features, train your drivers, and follow the traffic rules to prevent accidents and reduce your insurance costs.

If you want to learn more about commercial auto insurance or get a quote for your business, please contact us today or visit our website. We are here to help you with all your commercial auto insurance needs.

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