Most private-passenger car insurance policies are not designed to pay for claims related to a vehicle used for business purposes. Learn about commercial auto insurance and why you should have it.

If you don’t have a commercial auto insurance policy protecting the vehicle you use for work, you might be surprised (and sorry) to learn your private-passenger car insurance policy won’t cover damage or loss to your pickup truck if you get into an accident.

That’s because most private-passenger car insurance policies are not designed to pay for claims related to a vehicle used for business purposes. So even if your personal auto policy offers some level of coverage for shuttling between jobsites, chances are it’s inadequate if you get into a collision or if your vehicle is stolen or vandalized. That leaves you on the hook to foot the bill.

Also known as commercial vehicle or business auto insurance, commercial auto insurance provides coverage for your company’s vehicles, including cars, vans, trucks, and trailers — essentially any vehicle used for business purposes to transport people, materials, equipment or packaged goods.

What does commercial auto insurance coverage include?

Generally, a standard or basic commercial auto policy provides the same coverage as private-passenger car insurance. However, it comes with higher coverage limits and insurance providers are less inclined to refuse a commercial auto claim than a private-passenger car insurance claim for a vehicle you use to do your job.

Although the coverages may vary by province, if you live in a province like Ontario that permits private insurance companies to sell auto insurance, a standard or basic policy contains four mandatory types of coverages:

1. Third-party liability

Third-party liability provides financial support if you are at fault for an accident resulting in property damage, personal injuries to another person, or death. It pays their medical costs, repairs to their vehicle and damage to their property.

As in Ontario, most provinces require you to carry a minimum of $200,000 of third-party liability coverage. However, you can increase that limit to $500,000, $1 million or $2 million since the cost of an injured person’s medical bills can easily exceed the minimum amount.

2. Accident benefits

Accident benefits pay for your medical and rehabilitation expenses that aren’t covered by your province’s health care plan following a collision. 

You do have the option to increase the mandatory $200,000 coverage limit of your accident benefits insurance. However, be advised increasing the coverage limit also increases the cost of your annual premium.

3. Uninsured auto

All drivers in Canada must be insured to drive legally. However, it is estimated that two per cent of all drivers on the road drive without insurance. If you are involved in a collision with an uninsured motorist deemed at fault for the crash, an unidentified motorist, or a hit-and-run, uninsured automobile insurance will pay for damages to your vehicle, injuries or funeral expenses.

4. Direct compensation-property damage (DCPD). 

DCPD is provided in provinces with no-fault insurance systems, including Alberta, Nova Scotia, New Brunswick, Newfoundland and Labrador, Ontario, P.E.I. and Quebec. It provides you with compensation if your vehicle or property is damaged in an accident for which you are not at fault. DCPD expedites getting reimbursed for the damages you suffer by allowing you to file a claim to your insurance company for compensation.

Moreover, there are optional coverages you can add to your policy to up your protection. Among the most popular are:

• Collision or upset insurance.
  Collision insurance covers the cost of damages to your vehicle if you are at fault for an accident with another car or an object, such as a streetlight. It pays to repair or replace your vehicle (if it’s a total loss) minus a deductible. 
• Comprehensive insurance.
  This type of coverage pays for damages or losses to your vehicle resulting from natural disasters and severe weather, fire or explosions, vandalism and theft, falling objects and damage from a collision or impact with animals, less a deductible.
• All Perils Insurance.
  All perils insurance covers all causes of loss except those directly mentioned as exclusions in your policy. It combines collision and comprehensive coverages into one and includes additional features such as covering your vehicle if it’s damaged by an additional driver or someone in your household. It’s regarded as the best option. 

Here’s an example of a Zensurance client who is a general contractor on the value of having a commercial auto policy. Our client bought commercial auto insurance and included collision and comprehensive coverages in his policy for his pickup. Unfortunately, while driving to a jobsite in November in snowy, icy conditions, he slid off the road and smashed into a tree. Luckily, he was not injured, but his vehicle was a total loss.

Because he had collision coverage as part of his policy and since he was at fault for the collision with the tree, his insurance provider paid to provide him with funds to rent a vehicle while processing his claim. In the end, the total settlement he received from his insurance provider for his destroyed pickup truck was $20,000. Had he not had a commercial auto policy with collision coverage, the insurer may have rejected his claim.

Commercial auto insurance vs. commercial fleet insurance. what’s the difference?

Suppose you own a small construction business that has a fleet of vehicles. In that case, your better bet is to get a commercial fleet insurance policy. 

Whereas a commercial auto policy is designed for individuals or organizations with fewer than five vehicles, fleet insurance provides coverage for companies that operate five or more vehicles.

It too is designed to protect your pickups, cars or SUVs against the risk of third-party bodily injuries, property damage or other unexpected events such as theft or vandalism.

A commercial fleet insurance policy is typically cheaper than buying several standalone policies.

Aharshan Thangarasa is a licensed broker and team lead, contractors at Zensurance, Canada’s leading source for small business insurance. Get a free quote for your insurance needs by visiting Zensurance.com/DCN.