5 Mistakes to Avoid When Buying Auto Insurance

Relying on a Personal Policy to Cover a Business

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Many business owners assume that their personal auto policy will cover claims against their business. This assumption is incorrect.

For one thing, the Who Is An Insured section of a personal policy includes the individual named in the policy and his or her family members. It does a not include a business entity, unless the business is a sole proprietorship. Secondly, most personal auto insurers will not insure vehicles registered to a business. Thirdly, personal policies contain various business-related exclusions. For these reasons, it is important to buy a commercial auto policy to cover autos used by your business. Don't rely on your personal policy!

Skimping on Auto Liability Coverage

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 Many business owners fail to purchase enough auto liability insurance. This is a big mistake. You or an employee could inadvertently cause a serious accident. If several people are badly injured and sue your firm for bodily injury, the damages could reach $1 million or more. A auto liability claim of that size could devastate a small company.

When buying a commercial auto policy, don't choose the minimum liability limit required by law. Your business needs protection against a catastrophic loss. Auto liability insurance is much cheaper than a large uninsured claim. Most commercial auto insurers will readily provide a $1 million limit of liability. Additional limits can be obtained by purchasing a commercial umbrella policy.

Failing to Insure Hired and Non-owned Autos

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When purchasing commercial auto coverage, many business owners focus on the vehicles they own. They forget to consider vehicles they use (or might use) in their business but belong to someone else. These may include hired autos, meaning vehicles the company rents or borrows. They may also include non-owned autos. An example of a non-owned auto is a vehicle owned by a company employee.

Liability coverage for hired and non-owned autos can be included in a commercial auto policy for a nominal charge. Some insurers will provide it for free. To determine whether your policy includes this coverage, look at the covered auto designation symbols shown on the declarations page of your policy. Your policy covers hired autos if symbol 1 (any auto) or symbol 8 (hired autos) appears next to liability coverage. Non-owned autos are covered via symbol 1 or symbol 9 (non-owned autos).

Insuring Low Value Vehicles for Physical Damage

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Physical damage coverage can be a wise investment when vehicles are relatively new and/or have a high value. This coverage can help you avoid a large outlay of cash to repair or replace a vehicle that has been damaged, destroyed or stolen.

Yet, business owners may not realize how quickly new vehicles decline in value after purchase. According to the auto experts at Carfax.com, a vehicle is worth only about 80% of its purchase price after one year. The vehicle may lose an additional 15% to 25% of its value in each of the following four years.

If a company vehicle is more than a few years old, your recovery for a physical damage loss may be considerably less than you expect. This is because physical damage losses are calculated based on the vehicle's actual cash value (ACV). When determining the amount of a physical loss, an insurer chooses the lesser of two amounts: the cost or repair or replace the damaged auto (or part thereof), or the vehicle's ACV. If the cost to repair or replace the vehicle exceeds its ACV, the insurer will declare the auto a total loss.

Because vehicles depreciate so quickly, you should review your list of insured vehicles every year before your policy renews. For each auto listed, ask yourself whether physical damage coverage is still a smart investment. If you aren't sure whether to continue the coverage on specific vehicles, ask your agent or broker for advice.

Failing to Properly Insure Mobile Equipment

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Properly insuring mobile equipment like bulldozers and forklifts is more complicated than many business owners realize. This is because movable equipment may be covered under a general liability policy in some situations, and under a commercial auto policy in others.

Many states have enacted compulsory insurance laws that apply to certain types of mobile equipment. If such equipment travels on public roads, it must be registered and insured for liability. Mobile equipment that is subject to a compulsory insurance law is considered an auto under both commercial general liability and commercial auto policies.

When mobile equipment is being operated at a job site or on your premises, it is covered for liability under your general liability policy. However, your policy may provide no coverage if your equipment is involved in an accident while traveling on a public road. To cover such accidents, you may need auto liability coverage.

Mobile equipment that is subject to a compulsory insurance law may be insured automatically under your commercial auto liability coverage by use of an appropriate symbol.  An example is symbol 1, which provides coverage for any auto.