Most businesses carry commercial auto insurance to help them protect their financial interests from the effects of commercial vehicle accidents. However, simply having coverage does not free you from all financial responsibility. You will have policy deductibles and coverage limits to content with. What are these limits? How do deductibles work?
Commercial vehicle deductibles exist almost on every policy. They don't apply in all claim situations, but they can play a critical role in your recovery from wrecks and other losses.
Understanding Car Insurance Deductibles
Driving a business vehicle is just as financially risky as driving your personal car. In many cases, it might even be more dangerous. Should you have a wreck, experience personal or vehicle damage, or cause harm to others, that loss could call the business’s security into question.
Commercial auto insurance policies help you pay for costs arising from various mishaps and accidents you might encounter while driving business vehicles. It therefore serves as protection for both business and driver in case accidents occur.
However, one aspect of car insurance, commercial or private, is that it won't cover every cost loss a driver might experience. For a variety of reasons, most insurers expect policyholders to share in their damage costs to an extent. Most institute deductible requirements to enforce these rules.
A car insurance deductible is a policyholder's personal financial responsibility for a claim. In other words, the insurer will subtract the deductible cost from the total cost that will pay for a claim on your policy. You will pay the deductible cost, and then the insurer will pay the remainder of the claim.
Deductibles Are Not Policy Limits
However, the deductible is not a policy limit. The limits (of which there are several in most policies) define the maximum dollar amounts that an insurer will pay for different claims. The deductible is simply cost-sharing mechanism that policyholders and insurers split.
So, even if you pay a deductible on a collision claim, the policy will still only pay up to its maximum limit. In some cases, you will pay the full deductible and still have to pay more later because your damage costs exceed the limits of your policy.
Simple Deductible Scenarios
Most commercial auto policies have deductibles that start around $500 and increase to several thousand dollars. So, let's say you choose one worth $2,000.
- If you have a wreck that causes less than $1,400 in damage, then your insurer will not pay anything for a claim. Since the damage cost was less than the $2,000 deductible minimum, then the cost falls entirely to the policyholder.
- Perhaps a wreck causes $5,000 in vehicle damage. You'll pay the $2,000 deductible. The insurer will then pay the remaining $3,000 for your vehicle damage, since ($5,000 - $2,000 = $3,000)
- On most policies, totaled cars qualify for a maximum payment limit of the vehicle's cash value at the time of the accident. So, suppose a car worth $3,000 gets totaled by the insurer. You will pay the $2,000 deductible. The insurer will then pay you $1,000 for the remaining value of the vehicle.
The good thing about commercial auto insurance deductibles is that most policyholders have leeway to set their own deductibles. So, if you can only afford a $500 deductible, it makes sense to choose this lower out-of-pocket responsibility than to choose a $2,000 deductible.
However, think carefully about the deductible your business can afford. By increasing your deductibles, you might actually be able to save money on your premiums. Still, you shouldn't choose a deductible that is too high for you to comfortably manage to pay.
When You'll Pay a Deductible
Given that commercial auto insurance policies will contain many unique policy elements, you'll probably see several deductibles in the policy. You’ll often find deductibles within:
- Collision insurance that pays for your car's damage from wrecks.
- Comprehensive insurance that applies to vehicle damage from non-accident hazards like vehicle fires, weather damage or theft damage.
- Uninsured/underinsured motorist protection that pays for your damage costs you sustain that are caused by other drivers who lack appropriate insurance.
- Personal injury protection (PIP coverage) that pays your personal costs for medical bills or injuries sustained in a wreck. Please note, however, that PIP coverage usually still only pays a percentage of your costs even after you pay the deductible.
The good news is that most liability insurance payments that you owe others won't include deductibles. So, if someone makes a $30,000 property damage liability claim on your policy, it will pay that amount as long as you have at least $30,000 in liability coverage.
Not only that, some insurers offer deductible-free coverage for certain physical damage the car sustains. A common example is glass replacement insurance. If you have this coverage, and your $500 windshield breaks, but you have a $1,000 deductible, the insurer might still waive the deductible and cover the cost of the windshield damage.
Don't hesitate to call a Buschbach Insurance agent at (708) 423-2350 about the ways to tailor your deductibles to your commercial driving needs. With appropriate attention, you can strike the right balance of effective coverage and personal financial responsibility.
Also Read: Is Commercial Auto Insurance Tax Deductible?