Liability vs. Full Coverage Commercial Car Insurance

The basics of insurance can seem anything but basic. Digesting all the possibilities and information can feel so overwhelming that many business owners throw up their hands and toss the decision-making to someone (usually an insurance agent) who isn’t familiar with the ins and outs of commercial auto insurance. Education is the key to making wise business choices. So today, we’re going to review one of our most frequently asked questions, “What’s the difference between liability and full coverage commercial car insurance?”

Liability vs. Full Coverage Commercial Car Insurance

The first thing to understand is that liability insurance is included with full coverage commercial car insurance. So the question really shouldn’t be “what’s the difference” but “which one do I need?” We will get to that in a moment.

First, a little background. Liability insurance protects you by paying for the damage done to other vehicles or other people. Full coverage, on the other hand, protects your vehicle and your body. That, in a nutshell, is the biggest difference.

A quick review of Liability vs. Full Coverage Commercial Car Insurance:

  • Liability Insurance Covers Damage Done to the Propery of Others (Property Damage Liability)
  • Full Coverage Also Protects Your Property
  • Liability Insurance Covers Injuries to Others (Bodily Injury Liability)
  • Full Coverage Also Covers Your Body
  • 49 States Require Liability Insurance
  • Banks and Finance Companies Often Require Full Coverage
  • Liability Insurance Does Not Use Your Deductable
  • Full Coverage Uses Your Deductable
  • Full Coverage Replace Your Vehicle At Actual Cash Value if Damaged Beyond Repair

 

Which One Do I Need?

If you are a taxi, NEMT, or limo driver, the type of insurance you need will depend on the state you operate in, the policy of the company you drive for, and perhaps even your bank or financial institute.

For example, in Alabama, limousine drivers are expected to carry a split limit of 50/200/30. When you see three numbers written like this on a policy, the first number represents the minimum bodily injury per person. The second represents bodily injury per accident. The third is coverage for property damage.

In Alabama, the state minimums for limo drivers carrying between 5 and 20 passengers looks like this:

$25,000 for bodily injury per person
$50,000 for bodily injury per accident
$10,000 for property damage

The split changes depending on the industry you’re in, how many passengers you carry, and the state you operate in.

Do You Recommend Full Coverage?

Many states require the bare minimum, which usually falls under liability insurance, but insurance is not a great place to cut corners when you’re in the auto transportation business.

For those in the livery business, we recommend full coverage insurance. Again, more than likely, your state will require that you carry liability coverage to protect the people you transport. Adding full coverage insurance will also protect your business and may be required if your vehicle is financed.

That said, most financial advisors recommend you carry liability only insurance “if the annual cost of full coverage exceeds 10% of your car’s value.”

Keep in mind that this advice is aimed at consumers, not those in the transport business who spend considerable time on the road.

For companies in the transportation business, we recommend also considering the following:

  1. The cost of lost work
  2. Your ability to cover the repair or replacement of your vehicle out of pocket
  3. Your ability to pay for your personal medical bills

The Cost of Liability vs. Full Coverage Commercial Car Insurance

Insurance costs for commercial vehicles are contingent upon so many factors that it’s impossible to provide a one-size-fits-all example. In general, adding full coverage will cost an additional $500-$2,000 per year.

Using the advice above that says that you should consider liability only if the annual cost of full coverage exceeds 10% of your car’s value, let’s looks at three examples.

Taxi Driver 1: Driver 1 is driving a $10,000 used sedan for taxi services in New Jersey. She is quoted $1,700 for full coverage insurance. In this case, the cost to carry full coverage exceeds 10%. She will need to examine her financial situation holistically to determine if forgoing full coverage is wise.

Limo Driver 2: Driver 2 is driving a $50,000 Towncar in Louisiana. He is quoted $3,700 annually for full coverage. In this scenario, full coverage makes financial sense.

Rideshare Driver 3: Driver 3 is driving a $25,000 SUV in Alabama. She is quoted $2,400 for full coverage insurance. Again, in this scenario, adding full coverage makes sense.

Full Coverage and Beyond

Full coverage includes liability, as discussed, and also collision and comprehensive insurance.

Collision insurance provides protection regardless of who is at fault. Comprehensive insurance covers incidents not caused by an accident. For example, vandalism, theft, acts of nature, etc.

Many states and companies also require GAP, roadside assistance, uninsured/underinsured motorist coverage, and personal injury protection (PIP).

What we’ve reviewed skims the surface of liability vs. full coverage commercial car insurance as well as other types of insurance that may or may not be required. The bottom line: We recommend that most everyone in the livery business carry full coverage. If you are looking for livery insurance, give us a call at 908-224-9661, and we can walk you through the process and discuss the unique needs of your business.

Photo Credit: Jorge Zapata for Unsplash

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