Why is Commercial Auto Insurance so Expensive?

Commercial auto insurance is expensive because it covers business vehicles, which have a higher risk of accidents and damage.

The more a vehicle is used, especially for work, the more likely it is to be in an accident.

Furthermore, commercial vehicles often need more coverage than personal cars, which increases the cost.

This article will explain these reasons in a way that’s easy to understand, so you can make informed decisions about your commercial auto insurance.

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What is Commercial Auto Insurance?

Commercial auto insurance refers to a policy that provides financial protection for vehicles operated for business activities.

This agreement details the circumstances under which the insurer will cover monetary losses resulting from incidents involving business vehicles, such as accidents.

Importantly, this insurance covers company cars, trucks, and vans, including unique ones like food trucks.

Just remember, in the event of an accident while using a personal vehicle for business-related tasks, standard personal car insurance policies typically do not cover the damages.

Vehicles such as company-owned cars, commercial trucks, vans, box trucks, and food trucks fall under the category of business vehicles eligible for this insurance.

What Does Commercial Auto Insurance Cover?

Commercial auto insurance is a special policy for business vehicles that offers more coverage than personal car insurance. Here’s what it typically includes:

  • Bodily injury liability: Covers costs for injuries you or your employees cause to others, and legal fees if you’re sued.
  • Property damage liability: Covers costs for damage you or your employees cause to someone else’s property, and legal fees if you’re sued.
  • Combined single limit (CSL): Offers one total coverage amount for both injury and property damage claims, instead of separate limits.
  • Personal injury protection (PIP): Covers medical bills and other expenses like lost wages for you and your passengers, regardless of who’s at fault in an accident.
  • Medical payments (MedPay): Covers medical and funeral expenses for you and your passengers after an accident, regardless of fault. It doesn’t cover lost wages and usually has a limit between $1,000 and $5,000.
  • Collision insurance: Pays for repairs or replacement of your business vehicle after an accident.
  • Comprehensive insurance: Covers repairs or replacement of your business vehicle for non-accident issues like theft, vandalism, or natural disasters.
  • Uninsured motorist (UM) coverage: Pays for injuries to you and your passengers caused by an uninsured driver. Some places also offer coverage for vehicle damage caused by uninsured drivers.
  • Underinsured motorist (UIM) coverage: Helps pay your medical bills if the person at fault doesn’t have enough insurance to cover your expenses.

When Should You Consider Commercial Auto Insurance?

Here are situations where you should consider a commercial auto insurance policy:

  • You use a car exclusively for work, and it’s owned by the company.
  • The company owns the truck or van.
  • Your vehicle is essential for providing a business service.
  • When you transport tools or equipment for work.
  • You require increased liability coverage.
  • You use your car, van, or truck to transport goods or people for work.
  • Your employees drive vehicles for business purposes.

Why is Commercial Auto Insurance so Expensive?

Here’s a simpler breakdown of why commercial insurance can be pricier:

  • More Risks and Liability: Businesses face higher risks of accidents and damage when using vehicles for work, leading to higher insurance rates. To cover potential expenses, commercial policies have higher liability limits. Additionally, some industries inherently pose higher risks due to the nature of their work. Insurers assess the industry you operate in.
  • Driving and Claims History: The driving records of employees who drive business vehicles affect rates. High-risk drivers with violations or accidents can increase premiums. Also, a history of claims can raise costs.
  • Type and Number of Vehicles: Vehicle characteristics like size, weight, and usage affect rates. Larger vehicles may need specialized coverage due to the potential for more damage. Older vehicles can also lead to higher premiums. Furthermore, The more vehicles your business owns, the higher the premium. Insurers consider the fleet size when calculating rates.
  • Business Operations: The nature of your business affects premiums. Riskier industries like construction or delivery may face higher costs due to the perceived higher risk. Insurers consider how vehicles will be used and where they’ll travel.
  • Employee Usage: If employees use company vehicles, coverage details matter. Understanding how they’re covered during and outside work hours is crucial.
  • Coverage Limits and Deductibles: Higher coverage limits and lower deductibles lead to increased premiums. Balancing coverage needs with affordability is crucial.
  • Usage Frequency: How often your business vehicles are driven affects premiums. Frequent use increases exposure to accidents.

These factors collectively influence the price of commercial auto insurance.

What’s the Average Cost of Commercial Auto Insurance

Small businesses pay an average premium of $147 per month or $1,762 annually for commercial auto insurance.

According to Insureon, 37% pay less than $100 per month, while 26% pay between $100 and $200 per month.

Cost-Effective Solutions

Annual Premium Payment: Choose annual premium payments instead of monthly instalments. Annual premiums often cost less.

Higher Deductibles: Choosing a higher deductible can reduce premiums. Ensure it’s an amount your business can comfortably afford.

Policy Limits: Select appropriate coverage limits. Meeting state requirements is essential but avoid over-insuring.

Shop Around: Compare quotes from different insurers to find competitive rates.

Remember, commercial auto insurance is essential for protecting your business assets. Consult with a licensed insurance agent to tailor coverage to your specific needs and explore cost-effective options

Conclusion

In conclusion, commercial auto insurance is expensive due to various factors.

From the increased risks and liability associated with business operations to the driving and claims history of employees, insurers carefully assess multiple aspects before determining premiums.

Additionally, the type and number of vehicles, along with the nature of the business itself, play significant roles in determining the cost of coverage.

Understanding these factors can help businesses make informed decisions when it comes to purchasing commercial auto insurance and managing expenses effectively.

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