What are the Commercial Auto Insurance Requirements?

If you own or operate a business that uses vehicles, you need commercial auto insurance. Commercial auto insurance protects your business from the financial consequences of accidents involving your vehicles and drivers. It covers the damages and injuries that you or your employees may cause to others, as well as the damages and injuries that you or your employees may suffer from others.

According to the National Highway Traffic Safety Administration (NHTSA), there were more than 5.8 million police-reported motor vehicle crashes in the US in 2019, resulting in more than 36,000 fatalities and 2.7 million injuries. The total economic cost of these crashes was estimated at $242 billion, including $57 billion in property damage and $35 billion in lost productivity.

Commercial auto insurance can help you avoid or reduce these costs by providing various types of coverage options. However, these options are not optional for most businesses. They are required by state and industry regulations that apply to your business. In this article, we will explain the main types of commercial auto insurance requirements and how they differ by state and industry.

Liability Requirements

Liability insurance is the most basic and essential type of commercial auto insurance. It covers the legal liability that you or your employees may have in case of an accident involving a third party. A third party is anyone who is not you or your employee, such as another driver, a pedestrian, a cyclist, a property owner, etc.

Liability insurance consists of two components: bodily injury liability and property damage liability. Bodily injury liability covers the medical expenses, lost wages, pain and suffering, and legal fees that you or your employees may have to pay to a third party who is injured or killed in an accident caused by you or your employees. Property damage liability covers the repair or replacement costs, loss of use, and legal fees that you or your employees may have to pay to a third party whose property is damaged or destroyed in an accident caused by you or your employees.

Liability insurance is required by law in most states. The minimum liability limits vary by state, but they are usually expressed as three numbers separated by slashes, such as 25/50/25. The first number represents the maximum amount that the insurer will pay per person for bodily injury liability, the second number represents the maximum amount that the insurer will pay per accident for bodily injury liability, and the third number represents the maximum amount that the insurer will pay per accident for property damage liability. For example, 25/50/25 means that the insurer will pay up to $25,000 per person, up to $50,000 per accident, and up to $25,000 per accident for property damage liability.

However, these minimum limits may not be enough to cover the actual costs of a serious accident. If the damages and injuries exceed your liability limits, you will have to pay the difference out of your own pocket. This can put your business assets and income at risk. Therefore, it is advisable to purchase higher liability limits than the minimum required by law. The higher your liability limits, the more protection you have in case of a lawsuit.

Some examples of states with different liability requirements are:

• California: The minimum liability limit for commercial vehicles in California is 15/30/5, which is lower than the limit for personal vehicles (25/50/10). However, businesses that transport passengers or hazardous materials may need higher limits, such as 750/750/750 or 5 million/5 million/5 million.
• Texas: The minimum liability limit for commercial vehicles in Texas is 30/60/25, which is higher than the limit for personal vehicles (30/60/25). However, businesses that transport passengers or hazardous materials may need higher limits, such as 1.5 million/1.5 million/1.5 million or 5 million/5 million/5 million.
• New York: The minimum liability limit for commercial vehicles in New York is 25/50/10, which is the same as the limit for personal vehicles. However, businesses that transport passengers or hazardous materials may need higher limits, such as 100/300/50 or 1 million/1 million/1 million.

If you fail to meet the liability requirements for your state or industry, you may face penalties such as fines, license suspension, vehicle impoundment, or even criminal charges. You may also be liable for any damages and injuries that exceed your coverage limit. Therefore, it is important to comply with the liability requirements and to obtain adequate coverage for your vehicles and drivers.

Physical Damage Requirements

Physical damage insurance is another important type of commercial auto insurance. It covers the damage or loss of your own vehicles in case of an accident or other event. Unlike liability insurance, physical damage insurance is not required by law, but it may be required by your lender or lessor if you finance or lease your vehicles.

Physical damage insurance consists of two components: collision coverage and comprehensive coverage. Collision coverage covers the damage or loss of your vehicle due to a collision with another vehicle or object, such as a tree, a pole, or a guardrail. Comprehensive coverage covers the damage or loss of your vehicle due to any other event, such as fire, theft, vandalism, hail, flood, or animal strike.

The cost of physical damage insurance depends on several factors, such as the value, age, and condition of your vehicle, the deductible amount, and the depreciation rate. The deductible is the amount that you have to pay out of your own pocket before the insurer pays for the rest of the claim. The higher your deductible, the lower your premium. The depreciation is the decrease in the value of your vehicle over time due to wear and tear. The higher the depreciation rate, the lower the amount that the insurer will pay for your claim.

Some situations where physical damage insurance may be required are:

• If you finance or lease your vehicles, your lender or lessor may require you to have physical damage insurance to protect their interest in your vehicles. They may also specify the minimum deductible and maximum depreciation that you can have for your physical damage insurance.
• If you have a contract with a client or a partner that involves the use of your vehicles, they may require you to have physical damage insurance to protect their interest in your vehicles. They may also specify the minimum deductible and maximum depreciation that you can have for your physical damage insurance.
• If you operate in an industry that involves high-risk activities or environments, such as construction, mining, logging, etc., you may need physical damage insurance to protect your vehicles from potential damages or losses.

Some examples of businesses that may need physical damage insurance are:

• A delivery company that leases a fleet of vans to transport goods for its clients. The leasing company requires the delivery company to have physical damage insurance with a $500 deductible and a 20% depreciation rate.
• A landscaping company that finances a truck and a trailer to carry its equipment and materials. The financing company requires the landscaping company to have physical damage insurance with a $1,000 deductible and a 30% depreciation rate.
• A towing company that operates in a rural area where there are many deer and other animals. The towing company decides to have physical damage insurance with a $250 deductible and a 10% depreciation rate to protect its vehicles from animal strikes.

Other Requirements

In addition to the liability and physical damage requirements that we have discussed, there are some other types of commercial auto insurance requirements that may apply to certain businesses. These requirements may provide additional protection or convenience for your business in case of an accident or other event involving your vehicles. Some of these requirements are:

• Uninsured/underinsured motorist coverage: This coverage covers the damages and injuries that you or your employees may suffer from an accident involving a driver who has no or insufficient insurance. According to the Insurance Research Council (IRC), about 13% of drivers in the US were uninsured in 2019, and many more were underinsured.
• Medical payments coverage: This coverage covers the medical expenses that you or your employees may incur in case of an accident involving injuries to yourselves or your passengers, regardless of who is at fault. It does not cover the lost wages, pain and suffering, or legal fees that may result from an injury.
• Personal injury protection coverage: This coverage covers the medical expenses, lost wages, pain and suffering, and legal fees that you or your employees may incur in case of an accident involving injuries to yourselves or your passengers, regardless of who is at fault. It is similar to medical payments coverage, but more comprehensive and expensive.
• And more: Depending on your state or industry, you may have access to other types of commercial auto insurance requirements, such as rental reimbursement, towing and labor, roadside assistance, gap insurance, etc. These requirements may cover the cost of renting a substitute vehicle, towing your vehicle, providing roadside assistance, paying the difference between the value and the loan amount of your vehicle, etc.

Each type of requirement covers different situations and has different benefits and costs. You should consult with your agent or insurer to find out what requirements apply to your business and how they can benefit you. You should also compare the availability and cost of each requirement among different insurers to find the best deal.

Some examples of states or industries where other requirements may apply are:

• Florida: Florida is a no-fault state, which means that each driver is responsible for their own medical expenses regardless of who is at fault in an accident. Therefore, Florida requires all drivers, including commercial drivers, to have personal injury protection coverage with a minimum limit of $10,000 per person per accident.
• New Jersey: New Jersey is also a no-fault state, which means that each driver is responsible for their own medical expenses regardless of who is at fault in an accident. However, New Jersey allows drivers, including commercial drivers, to choose between a no-fault option and a tort option. The no-fault option requires drivers to have personal injury protection coverage with a minimum limit of $15,000 per person per accident. The tort option allows drivers to sue or be sued for damages and injuries in an accident, but requires them to have uninsured/underinsured motorist coverage with a minimum limit of 15/30/5.
• Taxi service: Taxi service is an industry that involves transporting passengers for a fee. Therefore, taxi service may require higher liability limits and other coverages than other businesses. For example, in New York City, taxi service requires a minimum liability limit of 100/300/200 and uninsured/underinsured motorist coverage with a minimum limit of 25/50/10. Taxi service may also require medical payments coverage or personal injury protection coverage to cover the medical expenses of the passengers.

How to Meet the Requirements

Now that you know the main types of commercial auto insurance requirements and how they differ by state and industry, you may wonder how to meet these requirements and obtain adequate coverage for your vehicles and drivers. Here are some steps that you can take to meet the requirements and find the best deal for your business:

• Identify your state and industry regulations: The first step is to identify the state and industry regulations that apply to your business and determine the minimum requirements that you have to meet. You can find this information on the websites of your state’s department of insurance or department of motor vehicles, or on the websites of your industry’s associations or organizations.
• Assess your business needs: The next step is to assess your business needs and determine the optimal coverage that you need for your vehicles and drivers. You should consider factors such as the type, value, usage, and location of your vehicles, the number, record, and training of your drivers, the nature and frequency of your trips, the potential risks and hazards that you face, etc. You should also consider your budget and how much you can afford to pay for your insurance.
• Compare different coverage options and quotes: The final step is to compare different coverage options and quotes from different insurers and find the best deal for your business. You should look for an insurer that offers the coverage that you need, the service that you want, and the price that you can afford. You should also look for discounts, incentives, or rewards that may lower your premium or enhance your coverage. You can use online tools, such as comparison websites or calculators, to compare different coverage options and quotes from different insurers.
• Obtain and maintain your coverage: Once you find the best deal for your business, you should obtain and maintain your coverage. You should review your policy carefully and make sure that it matches your needs and expectations. You should also keep your policy updated and make changes as necessary, such as adding or removing vehicles or drivers, increasing or decreasing limits or deductibles, etc. You should also pay your premium on time and avoid lapses or cancellations of your coverage.

If you need more information or assistance on how to meet the commercial auto insurance requirements for your business, you can contact us today or visit our website. We are here to help you with all your commercial auto insurance needs.

Conclusion

Commercial auto insurance is an essential protection for businesses that use vehicles. It covers the damages and injuries that you or your employees may cause to others, as well as the damages and injuries that you or your employees may suffer from others. It also covers the damage or loss of your own vehicles in case of an accident or other event.

There are various types of commercial auto insurance requirements that you have to meet, depending on your state and industry regulations. These requirements include liability insurance, physical damage insurance, and other types of insurance. Each type of requirement covers different situations and has different benefits and costs. You should compare different requirement options and quotes from different insurers to find the best deal for your business.

Commercial auto insurance can help you comply with the state and industry regulations and obtain sufficient coverage for your vehicles and drivers. It can also help you avoid legal troubles, protect your business assets, and enhance your business reputation. However, commercial auto insurance is not a substitute for safe driving practices and risk management strategies. You should always maintain a good driving record, choose a safe vehicle, install safety features, train your drivers, and follow the traffic rules to prevent accidents and reduce your insurance costs.

If you want to learn more about commercial auto insurance or get a quote for your business, please contact us today or visit our website. We are here to help you with all your commercial auto insurance needs.