Group of employees putting their belongings in the trunk of a car.

From costs to state regulations, there are several things business owners need to know when having employees drive company cars. — Getty Images/Klaus Vedfelt

If you provide company vehicles for your employees, it’s important to have adequate commercial auto insurance. Here are six things businesses need to know about insurance requirements for company vehicles.

Commercial auto insurance provides liability protection

Companies need commercial auto insurance because it provides liability protection if an employee is in a work-related accident. It covers any vehicles used for business purposes and any employees driving them.

If you or one of your employees is at fault in an auto accident, the other driver can file a lawsuit against your business. Your commercial auto insurance will cover damages up to the policy limit.

It’ll also cover any medical expenses for you or one of your employees. Also,. depending on your policy, it may cover any legal costs your business incurs.

States regulate commercial auto insurance

Since the state regulates commercial auto insurance, the exact requirements will depend on your business location. Failing to carry adequate commercial auto insurance could result in hefty fines, leaving your business vulnerable to a lawsuit.

Every state, except Virginia and New Hampshire, requires commercial auto insurance for company vehicles. And every state requires you to compensate the other driver if you or one of your employees are at fault for the accident.

Before purchasing commercial auto insurance, make sure it meets the minimum requirements in your state for bodily injury liability and property damage liability. You can contact a licensed insurance agent to determine your business requirements.

The costs can vary depending on your business

According to Insureon, the median price for commercial auto insurance is $142 per month, though some businesses can pay less than $120 per month. The exact cost will depend on the following factors:

  • The size of your business.
  • The number of vehicles you need to insure.
  • The types of vehicles you’re insuring.
  • How many employees drive company vehicles.
  • The amount of coverage you need.
  • Any work-related driving risks.

[Read more: How to Handle Employee Expense Reimbursements]

Before purchasing commercial auto insurance, make sure it meets the minimum requirements in your state for bodily injury liability and property damage liability.

Know what type of coverage you have

Your commercial auto insurance policy will provide coverage using either a split limit or combined single limit. A combined single limit policy has one coverage limit for any damage or injuries sustained during the accident.

Let’s say you’re involved in an accident that damages another vehicle, and the other driver sustains a bodily injury. If you have a coverage limit of $250,000, that will go toward covering both injuries and damages related to the accident.

If you have a split limit policy, there are different coverage limits for bodily injuries and property damage. This means, depending on your per-person coverage limit, you could be personally responsible for some of the damages if you max out that limit.

[Read more: Should You Give Employees a Company Car?]

You may need additional coverage

Depending on your commercial auto coverage and the type of work-related driving you or your employees do, you may need to purchase additional coverage. For instance, if your employees use personal vehicles for work or you lease or rent company vehicles, you’ll need hired and non-owned auto insurance (HNOA).

Commercial auto insurance only covers vehicles your business owns, while HNOA protects vehicles your company uses but doesn’t own. For instance, if your employees regularly travel for work and need to rent cars, you probably need HNOA.

And if your employees have to cross state lines to travel for work, you may need additional coverage. For instance, the coverage limits could be higher in the state your employees are traveling to. If this is the case, speak to your insurance provider to see if they will cover the difference.

Your premiums may be tax-deductible

Your commercial auto insurance premiums may be tax-deductible if you meet specific criteria. If you plan to deduct your premiums, make sure you track your mileage, hold onto any receipts, and keep a record of your driving history for at least three years.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published November 10, 2022