Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Oct 18, 2020

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Key takeaways...

  • However, it is important for all businesses, big and small, to carry commercial insurance coverage on their vehicles
  • Personal auto insurance will not pay for business use of a vehicle — it is one of the questions that insurance providers ask for a policy application
  • Liability coverage pays for damages and injuries caused to others. If your delivery truck causes an accident, then liability coverage will pay to fix those damages and injuries up to your policy limits
  • This requirement for proof of insurance is the same for commercial vehicles as it is for private vehicles

Business car insurance is a gray area for many business owners. However, it is important for all businesses, big and small, to carry commercial insurance coverage on their vehicles.

Most states have laws mandating coverage for business car insurance just as with personal car insurance.

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Having commercial auto insurance is the only way to ensure that your business-use vehicles are completely covered. This means that business car insurance is the only way to make sure that your business is protected from a lawsuit, liability damages, or loss of an asset.

Most laws treat business vehicles and private-use cars the same. However, there are a few laws that pertain just to commercial vehicles.

Table of Contents

Other Insurance Coverage

There are many different types of businesses out there, and many smaller or home-based businesses rely on other types of insurance to provide coverage for their vehicles. However, there are few instances where a business vehicle will be covered by any other kind of insurance.

For one, most business owners have liability and property insurance. They believe that this insurance will also cover company vehicles.

However, most business owner policies, or BOPs, do not specifically cover commercial vehicles unless that option is purposely added as part of the policy.

Furthermore, many small business owners who use their private vehicles for company use believe that their private auto insurance company will cover any liability, damages, or loss. Again, that is just not so.

Personal auto insurance will not pay for business use of a vehicle — it is one of the questions that insurance providers ask for a policy application. This is to ensure that vehicles that are used for business purposes have business car insurance.

Additionally, many home-based business owners believe that they can find coverage for their vehicles through a homeowner’s or renter’s policy. However, while a homeowner’s policy generally has a section that covers property used in the home, this generally does not extend to vehicle use.

The only way to ensure that your company vehicles, or private vehicles that are used for business purposes, have coverage is through business auto insurance.

It should be a part of your business’s overhead, just like the other insurance packages you buy.

If your company is without commercial auto coverage, then your business is in danger. You insure your business against theft, damages, and lawsuits; covering the vehicles that your business relies on is no different.

Your business can be liable for damages and injuries that were caused by your company vehicles, regardless of who was driving. Furthermore, your company can also be held liable even if one of your employees causes an accident in their own car if they were driving for business reasons.

That also opens your company up to being sued for damages beyond liability, such as pain and suffering. Even if the lawsuit is proven to be groundless, you will still likely want to hire a lawyer to represent your company in court.

Furthermore, if your company is not incorporated, then you as the business owner can also be named in a lawsuit.

The high cost of a lawyer alone is enough to do damage to your company. If you truly want to protect your company and its assets, then you need to have business car insurance.

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State Minimums

The first law that concerns business car insurance is the same law that pertains to private car insurance. Just about every state requires a vehicle that is driven on public roads to have a certain amount of liability coverage.

Liability coverage pays for damages and injuries caused to others. If your delivery truck causes an accident, then liability coverage will pay to fix those damages and injuries up to your policy limits.

Each state has a different minimum amount of liability coverage that must be purchased to legally operate a vehicle. You can utilize the map offered by the National Association of Insurance Commissioners to find your state’s minimums.

However, most experts agree that you should have more insurance than your state’s minimum amounts. While private auto insurance levels should be higher than state minimums also, it is recommended that most businesses carry at least $1 million in liability coverage.

Additionally, many states also require by law that you carry coverage such as personal injury protection and uninsured/underinsured motorist coverage.

These types of coverage pay for your injuries or damages in an at-fault accident or if an at-fault driver doesn’t have enough insurance to cover you, respectively.

The Insurance Information Institute offers a chart showing what insurance coverage types are required in each state.

Some states allow drivers to show the ability to financially pay for the liability of an accident instead of purchasing insurance.

For instance, the Washington State Department of Licensing lists four different ways that vehicles can be legally covered in Washington State. Instead of auto insurance, companies or individuals can utilize self-insurance or post a bond or certificate of deposit for at least $60,000.

Proof of Insurance

Another law that pertains to both drivers of private vehicles and commercial vehicles is the proof of insurance law. In most states, it is required that drivers show proof of insurance when asked by a police officer or after an accident

For instance, the District of Columbia Department of Motor Vehicles maintains that drivers must show proof of insurance when asked by a police officer, or face a $30 fine.

This requirement for proof of insurance is the same for commercial vehicles as it is for private vehicles.

If you live in a state where they have a proof of insurance law, then you must be prepared to show proof of insurance when asked by a police officer or after an accident.

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Insurer Verification Laws

Laws pertaining to showing proof of insurance are aimed at reducing the number of drivers on the roads without insurance. Some states are going even further in their attempt to discourage uninsured motorists. Many states are enacting insurer verification laws.

These laws require insurance companies to provide their drivers’ records to the state’s department of motor vehicles. Insurance providers might have to turn over records such as VIN numbers or names and addresses of those they insure.

Those VIN numbers or other data are then compared to vehicle registration rolls. Any driver who has a registered vehicle but no coinciding coverage from an insurance company will have only a certain amount of time to show proof of coverage or have their vehicle’s registration revoked.

Furthermore, insurers might be required in some states to notify a DMV when a driver drops insurance coverage. Other insurer verification laws require insurers to verify random insurance policies.

These laws pertain to business vehicles used for commercial applications, as well as private vehicles used for personal use. Few businesses want to have to deal with having the registration of their vehicles invalidated.

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Registration

Another law that affects both private vehicles and business vehicles is the registration requirement. All states require a vehicle to be registered with the state’s department of motor vehicles before it can be driven.

Some states require proof of insurance at the time of registration as well. Furthermore, proof of registration is another law that can be found in some states.

Essentially, just like the proof of insurance law, drivers must show proof of registration to law enforcement or face a fine.

Again, these laws pertain to all vehicles on the road. Both commercial and private use vehicles are required to be registered with the state and show proof of registration when asked. Business vehicles are fully expected to have proof of registration when required.

Federal CDL Requirements

There is one set of laws that does differentiate between private-use vehicles and commercial vehicles. The U.S. Department of Transportation lists the requirements of the Federal Commercial Motor Vehicle Safety Act of 1986.

The Act is focused on establishing those vehicles that require Commercial Driver’s Licenses, known as CDLs. Tractor trailers and buses are examples of such vehicles that now require drivers to possess CDLs to operate them. Prior to 1986, there were no laws requiring special testing, education, or licensing of such vehicles.

While states are still the governing bodies for setting their own rules and regulations regarding the details of licensing and insurance, the Federal Government basically ruled that they must do so with the Act.

Special licensing requirements for vehicles carrying dangerous cargo, called a Hazmat endorsement, are part of the Commercial Motor Vehicle Safety Act.

The rules and regulations that create standards, education, and testing for CDL drivers have had a huge impact on the insurance coverage of big commercial vehicles.

Insurers now know that drivers of such large vehicles are tested and held to higher driving standards.

As such, insurance companies can also utilize the same requirements for licensing as part of their requirements of insurance for larger commercial vehicles that carry expensive materials, harmful substances or many people.

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References:

  1. http://naic.org/state_web_map.htm
  2. http://www.iii.org/issues_updates/compulsory-auto-uninsured-motorists.html
  3. http://www.dol.wa.gov/driverslicense/insurance.html
  4. https://www.insureyourcompany.com/blog/7-tips-for-saving-money-on-your-commercial-auto-insurance-policy/