Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 2, 2021

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Insurance Q&A: “Why you need commercial vehicle insurance.”

Contractors and small business owners, it is specifically in your best interest to listen!

Information in this article may mean the difference between you being either in business or in the poor house as a result of an auto accident you may have caused while operating your “work” vehicle.

The potential savings you think you’re getting by neglecting to purchase commercial vehicle insurance can really come back to bite you. You may think you’re just opting for classic car insurance and avoiding an insurance rate increase, but really you are just selling future you short.

Why commercial vehicle insurance is often a necessity 

The bottom line is; you need to purchase a commercial vehicle insurance policy (also referred to as a commercial auto policy) if you use your vehicle as part of your day-to-day commercial operations. You may work for a rideshare company, or a taxi service, or deliver furniture. Whatever your work vehicle needs are, a commercial auto policy is essential.

Your insurance company has the right to deny your property damage claim (or a third party liability claim made against you) if you only have a personal auto insurance policy on your commercial vehicle.

That’s right. The $35,000 bodily injury or property damage claim filed against you will be paid out of your company’s operating account…not by the insurance company!

Don’t think so? Go back and read the policy application you signed. You will notice you answered a question about whether or not your vehicle is used for delivery or any other business purposes.

Remember, your insurance policy is a contract. Stating you don’t use the vehicle for business purposes, when in reality you do, is referred to as misrepresentation (or fraud), which voids your policy. It is not worth it to lie and risk losing your coverage if something happens. There is no deal on insurance or trying to save by not having the proper coverage.

Tip: If you have a ladder rack, tool box, company logo (either painted or magnetized) or any other distinguishable commercial use characteristics on your vehicle, an insurance company will likely deny coverage for any insurance claim you file.

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Why does the insurance company care if I have commercial vehicle insurance?

Just like your business, insurance companies are all about money at the end of the day.

It’s important to understand how insurance companies make money to grasp why insurers care, even if the liability and property damage limits are the same on both a personal and commercial auto policy.

It has to do with the frequency and severity of claims filed under commercial insurance policies.

The more claims paid (frequency) and the higher the amount of money paid out per claim (severity), the more money the insurance company needs to charge for coverage.

Often times, much larger damages are awarded to individuals who are injured by an accident involving a business because the stakes are usually much higher.

The result? Higher insurance premium for commercial auto policies. If your current insurance does not include a commercial auto policy, now is the time to get on board!

Is there a difference in coverage with commercial vehicle insurance?

Not necessarily. You can certainly purchase minimum auto insurance (liability only) for your commercial vehicle (for those of you who don’t feel any additional coverage is necessary).

However, it is recommended that you purchase higher liability limits, taking into account the information above regarding the higher overall awards for damage per accident in commercial cases. Choosing a higher liability limit is playing to your financial strength.

Additionally, you may consider purchasing coverage unique to commercial auto policies depending on what type of business you own.

A legitimate commercial vehicle policy will offer you both “hired” and “non-owned” coverage. There may be additional products the company offers that are relevant to your specific situation, but any average car insurance provider will offer at a minimum, those two coverages.

What is the difference between hired and non-owned coverage?

You would need hired car coverage in the event you needed to hire a vehicle to complete your operations if the event your regular use vehicle is in the shop or you cannot keep up with your current volume of business.

Non-owned coverage will offer liability insurance for your company when, perhaps, an employee uses their own vehicle in the course of your business.

Yes, if your employee causes an accident while driving their own car to pick up some paperwork or a tool for your business, you can expect a letter from the injured party’s insurance company or lawyer.

These examples are no joke. These sorts of accidents happen on a daily basis.

As a result, many small businesses close their doors each day as a result of a car accident…probably the last thing you considered would sink your company.

You did save $75 on the insurance policy that didn’t cover you though…You can use that savings to hire someone to write your new resume for you.

Find the cheapest car insurance now and compare rates by entering a valid zip code below with our faster quoting process!

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Are there any exceptions?

There are some “business use” classifications that do not require a commercial auto insurance policy.

For example, if you are a realtor or attorney, and simply drive around town to show homes or pick up legal documents, you would likely be able to endorse a personal auto insurance policy with business use and call it a day.

There are also some insurers who will offer a “light contractor” use classification on their personal auto policy forms.

The underwriting guidelines typically stipulate you don’t stop at more than two or three locations per day, which limits the liability involved with insuring you, as you are parked most of the day while performing you job function.

It may be necessary to visit an independent insurance agent to evaluate your commercial vehicle insurance needs.

There are plenty of insurance companies out there looking for your business, so make sure you don’t end up with just one insurance quote for your policy, and don’t settle if you are dissatisfied with your current auto insurance company. Coverage with auto insurance can be difficult navigating, but it is always worth browsing to ensure you find what you’re looking for, whatever types of insurance it may be.

Read more: Commercial auto insurance coverage symbols.