Many small business owners need to use vehicles, which can often be a massive part of their business plan. To save costs, many choose to use their own personal car insurance for business vehicles. However, this may not be enough to protect a business and its owner in case of a collision. This leads to the question of do small businesses need commercial auto insurance? Here we’re going to give you all the information you need to make an informed decision. Let’s get started by looking at exactly what commercial auto insurance is.
Commercial Auto Insurance Explained
In short, commercial or business vehicle insurance is a specific insurance policy that covers vehicles used in a business. Just like your personal car insurance, commercial policies shield your business against liability if your business vehicle gets into an accident.
Besides damages that result from accidents, business insurance policies can also pay for compensation for medical or legal expenses of those injured in the vehicle.
There are three types of commercial vehicle insurance in Canada:
Business Coverage – Designed with individual entrepreneurs, home run and small businesses in mind, this commercial auto insurance policy provides protection while driving to locations and meeting with clients. Most insurers have this as an add-on to your personal car insurance.
Business Coverage for Multiple Users – Business owners can add several drivers to the commercial policy, so all employees who utilize the vehicle will be protected.
Commercial Coverage – This policy applies if the vehicle is used solely for business purposes. Regularly used equipment can be added as well to this coverage.
The Difference Between Commercial and Personal Auto Insurance
While, in essence, commercial auto insurance works the same way as personal auto insurance (by protecting you against liability and losses and providing resources upon filing a claim), they have their differences.
These lie in the plan limits, threat and policy types offered in the two distinct insurances. Moreover, personal car insurance is only suitable for protecting individual owners and won’t cover any business vehicle incidents. This also works the other way, as commercial auto insurance applies only to businesses and won’t cover personal-use vehicles.
Who Needs Commercial Auto Insurance?
In short, any vehicles used in a business, whether for transporting equipment, tools, goods, materials, or clients, need commercial auto insurance coverage in Canada. As mentioned before, your personal vehicle insurance doesn’t cover autos used in business operations.
So, as a small business owner, you may need to apply for IRCA (Individually Rated Commercial Auto insurance) and purchase a business insurance policy.
Other factors that determine whether you need commercial auto insurance are:
Vehicle Type – If you drive a larger commercial vehicle, you’ll need business coverage because these vehicles can cause a lot more damage in an accident. If you own multiple business vehicles, it makes sense to get commercial fleet insurance.
Vehicle Use – If you use your auto to make deliveries, visit clients and offer services, or transport the equipment you use in your business, you’ll need commercial auto insurance, as without protection, your damages will be much greater.
Vehicle Owner – If the vehicle is owned by your company, it can’t be covered by your personal insurance policy.
Make sure to advise your insurer whether you’re using the vehicle you want covered for personal or business use. If you tell your insurer the vehicle is for personal use when in fact, it isn’t, and you get into the accident, the company will likely deny your claim.
The Benefits of Commercial Auto Insurance
If vehicles are an integral part of your small business operation, you only get to gain from purchasing commercial auto insurance. You’re getting an added layer of protection not only for your business but also for the vehicles and any personnel driving the vehicles.
While types of insurance will vary by province, the primary benefits (in terms of coverage) of commercial car insurance are as follows:
Liability – Provides protection if someone is injured, dies, or suffers property damage, while in or caused by your business vehicle. It includes payment of legal fees up to the limit outlined in your policy and the costs of settling claims with the other party. According to Canadian law, every vehicle owner (including small businesses) must have a Third-Party Liability coverage.
Accident Benefits – Provides protection for you or anyone else under the policy in case of an injury, regardless of who was at fault. Beyond initial medical expenses, the policy also covers the costs of recovery services, such as rehabilitation, income replacement, etc.
Damages or Losses – Covers against accidental or direct damage or loss of the vehicle and equipment. This may include all perils (damages), collision/upset (collision with another car or object or if the vehicle tips over), specified perils (like fire, windstorm, theft, earthquake, hail, etc.), or comprehensive (protection against everything included in the specified perils and vandalism, falling objects or missiles) coverage.
Final Thoughts
Small businesses will benefit from commercial business insurance on many levels. Simply put, if you use a business vehicle and cause damage or injury, your personal car insurance likely won’t cover your expenses.
You can avoid these issues by purchasing commercial auto insurance and tailoring your policy to your business plan and needs. If you’re looking for a policy, then contact Buckler Insurance today, and we’ll be more than happy to give you a quote.
