Questions to Ask Before Buying a Commercial Auto Policy
A commercial auto policy is an important element of a business insurance program. If your company uses vehicles in its operations, you should purchase commercial auto insurance. Here are some issues to consider before buying a policy.
What Kind of Autos Does your Business Own?
In commercial auto insurance, vehicles are divided into two broad categories:
- Private passenger-type autos
- Trucks, tractors, and trailers
Private passenger autos include vehicles such as sedans, minivans, and station wagons. Trucks vary widely in size. In commercial auto insurance, they are subdivided into classes based on their gross vehicle weight (GVW). For example, a half-ton pickup would be classified as a light truck. A garbage truck would likely be classified as a heavy truck or extra-heavy truck, depending on its GVW.
Vehicles that are part of a fleet are generally charged lower rates than those that aren't. A fleet typically consists of five or more vehicles owned by the same company. The vehicles may be trucks, private passenger types, or a combination of the two.
Before shopping for insurance, make a list of the vehicles your company owns. Include the year, make, model, and GVW (for trucks only).
Does Your Firm Use Autos It Doesn't Own?
Another matter to consider is whether your firm uses autos it doesn't own. Autos you don't own that are used in your business may be a source of lawsuits against your firm if such autos are involved in accidents.
Under a commercial auto policy, autos you don't own are divided into two categories:
- Hired Autos: These are vehicles your business leases, rents, hires or borrows.
- Non-Owned Autos: These are vehicles, other than hired autos, which your business uses but does not own. An example is an auto that is owned by one of your employees and used in your business.
What if your company uses hired or non-owned autos only. Do you need to purchase commercial auto liability coverage? The answer is yes. Your business needs auto coverage even if it doesn't own any vehicles. You can purchase a policy that covers only hired and non-owned autos.
How and Where Are the Vehicles Used?
Two questions a commercial auto insurer is certain to ask are:
- How are your vehicles used?
- Where are your vehicles garaged?
The manner in which vehicles are used affects the rates you pay for auto insurance. Generally, rates are inversely related to the time spent on the road and the distance traveled. You'll pay a higher rate to insure a truck used to deliver products to customers than for a similar truck that sits at a job site most of the day. Likewise, a truck that travels only a few miles each day will cost less to insure than a similar truck that travels 100 miles daily.
The geographic location where your vehicles are stored and driven also affects the rates you pay. Some areas present greater risks than others. More accidents or thefts may occur in one place than another.
Who Owns the Vehicles?
Before purchasing auto insurance, it is important to know how your business should be listed on the policy.
The person or entity that owns the vehicles should be shown as a named insured. Otherwise, the registered owner of a vehicle could find itself with no coverage for a claim.
For example, suppose that you own ABC Inc., a computer services firm. Your company has created a subsidiary called XYZ Inc. The subsidiary company owns a fleet of trucks that it leases to ABC. When you buy commercial auto coverage, your policy should list both companies as named insureds. Make sure your insurer doesn't omit XYZ, the registered owner of the vehicles.
Special regulations may apply to businesses that operate certain types of vehicles. For instance, some companies that transport cargo across state lines must meet requirements imposed by the Department of Transportation. Businesses that transport hazardous materials may be subject to both state and federal regulations.
If you are subject to such regulations, be sure your insurance agent or broker is familiar with them. He or she should know how the laws affect you and the requirements you must meet.
Tips for Lower Premiums
Here are some steps you can take to reduce the cost of commercial auto insurance.
- Secure Storage: Store your vehicles in a secure area that offers protection from vandals and thieves.
- Good Drivers: Hire qualified drivers with good driving records.
- Choice of Vehicle: Choose vehicles that are safe, reliable and not overly costly to repair. Features such as air bags, a backup camera , anti-lock breaks, and an automatic braking system may help lower your insurance rates.
- Deductibles Commercial physical damage coverage will be cheaper if you choose high deductibles.
- Anti-Theft Devices Protect your vehicles from thieves. Choose vehicles that include electronic keys, GPS tracking, an alarm system, and other anti-theft devices. Don't leave keys in the vehicle.
Edited by Marianne Bonner