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Getting Started
Commercial auto insurance can be an effective tool for supporting the stability of farm and ranch businesses. When farm vehicles are damaged, producers can receive money from auto insurance to repair or replace those vehicles that enable day-to-day operations. Auto insurance is just one type of property insurance that may help your risk management goals, and it can be purchased as a stand-alone policy or as an add-on to a general farm property insurance plan. To learn more about farm property insurance in general, check out our Farm Property Insurance Basics guide to get started. But if you want to know more about commercial auto insurance specifically, you’re in the right place!
This guide breaks down how auto insurance fundamentally works in the context of a farm business, helping you understand what kind of policy is the right match for your needs and concerns. Afterward, you’ll be well-positioned to contact an insurance agent to get or extend auto insurance coverage to meet your needs.
Let’s get started!
Commercial vs. Personal Auto Insurance
Many people are familiar with the basics of auto insurance: we give insurance companies a monthly (or annual) payment in exchange for financial resources to address vehicles damaged if an accident occurs. But how does auto insurance change in a business context? What are the nuances that farmers and ranchers should be aware of for their farm vehicles? This guide will help you understand the general types of auto coverage available to you as a small business owner. We offer guidance to help you decide how to cover your risks and find peace of mind.
The fundamental role of insurance is to protect people and businesses from unexpected expenses. An auto accident could be a huge expense. If the farm truck is unusable, the farmer must rent a vehicle or buy a new one. And if the farmer is at fault in the auto accident, they may also be responsible for covering the cost of the damage. Auto insurance policies will give you resources to offset your expenses from the accident.
Note: Auto accidents could also lead to legal fees if a lawsuit is filed or medical expenses if someone is injured– but for the purposes of this guide we will focus on the risk of property damage resulting from auto accidents.
Generally, when a farmer first gets into the business (taking produce to the farmers’ market, managing a few fields for another operator, etc) they use the same vehicle for farming as they do for everyday living. Most of us carry auto insurance for our cars. We’re required to by law in most states. So it’s easy to assume that our personal car insurance will cover us while using vehicles for work– like making wholesale deliveries. But does it work that way?
The short answer is no. Insurance companies make a distinction between personal and commercial auto policies. Commercial policies generally have higher premiums than personal policies to account for the unique risks commercial vehicles face. A car accident involving a personal vehicle while it’s being used for business might not be covered by personal auto insurance.
But for farmers and ranchers, the line between personal and business is blurry. Imagine driving into town to pick up groceries for yourself, but stopping at the hardware store to get supplies for a pack shed repair. Were you using your car for personal or commercial use? With this overlap between farmers’ personal lives and work, it’s hard to determine when a commercial auto policy is needed. The key is making informed risk-management decisions for yourself and your business goals.
To explore the nuances, we are going to visit some friends. We’ve got three farmers to check in on, all with different operations and uses for their vehicles. But they are all dealing with the aftermath of the same unfortunate situation. While driving into town on business (making deliveries, going to the farmers market, picking up supplies, etc) they rear-end the car in front of them. Uh oh! Our friends are at fault and potentially responsible for damages to both vehicles. Let’s see how auto insurance might help each farmer cover the expenses associated with the accident.
Learning from Farmer Stories
Farmer Aster
Aster operates a small diversified vegetable farm, with no employees. She uses her personal pickup truck to drive the harvest for her 30-member CSA into her pickup location in town once a week and to carry equipment around the farm property.
Aster owns her truck herself (instead of the business owning it), so the truck is covered under a personal auto insurance policy. After rear-ending someone on the way to her CSA dropoff, Aster files a claim with her insurance to cover the damage to her truck. But she gets a letter saying her insurance will not cover the damage to her vehicle. Why? Because personal auto insurance does not cover vehicles while they are used for business. Business vehicles are seen to have a higher risk than personal vehicles, because of how frequently they are on the road, their size, and/or their cost. Commercial policies will usually have higher premiums to account for this risk.
You might be wondering: how would Aster’s insurance know that she was using her truck for business when the accident happened? The police report could mention that her truck bed was full of boxed vegetables. Or a medical report could list her occupation, which might prompt a claims adjuster to do more digging. Sometimes, insurance companies do not discover that a vehicle was being used for commercial purposes– and that’s a risk Aster could have intentionally taken.
Is there anything Aster could have done to prevent this pickle? Yes! A little research would have told her that personal auto insurance policies generally have a business use exclusion, meaning that the policy does not cover accidents while the car is being used for business purposes. With this knowledge, Aster could have spoken to a trusted insurance agent about her situation. With all the details about Aster’s car and her uses of it, the agent could have recommended a few things:
- Adding a business use endorsement on Aster’s personal auto insurance policy. An endorsement is an add-on to your policy that extends coverage in certain areas. This coverage tends to be limited and highly customized to your specific uses.
- Pursuing a full commercial auto insurance policy. Generally, commercial auto insurance only covers vehicles owned by the business. But through a conversation with her agent, Aster may be able to extend the commercial policy to her personally. It is also possible that Aster would need both personal and commercial auto insurance on her truck.
What we learned from Aster:
- Personal auto insurance policies, by default, will not cover business use.
- The best way to ensure adequate coverage is by talking to an insurance agent about the specific uses of a vehicle.
Farmer Jo
Jo runs a berry farm. During the busy season, she delivers fresh berries to restaurants and grocery stores in town twice a week. Since her season is fairly short, Jo feels it’s not worthwhile to invest in a vehicle just for her delivery season. Jo considers using her personal vehicle or renting one. Her beat-up farm truck doesn’t offer the berries enough protection and may not be the right move for her farm image. Jo decides to rent a truck to make her deliveries instead.
Jo is concerned about what would happen if she gets in an accident, especially squeezing into tight delivery docks downtown. She worries that her personal vehicle insurance won’t cover her while driving a rental truck for her business (commercial) needs. A friend recommends a policy called Hired and Non-Owned Auto insurance (HNOA). This is a commercial policy, and it covers vehicles the business uses for work purposes but doesn’t own (they may be leased vehicles, or owned by employees). Jo calls up her insurance agent and asks for a quote. The insurance agent will sell her a stand-alone HNOA policy but tells her it only covers liability (damage to other people and property). Jo will also need to purchase insurance from the rental company to cover any damages to the rental truck. From Jo’s perspective, this option is still more cost-effective than purchasing a full commercial policy.
After rear-ending someone while making deliveries in the rental truck, Jo sees that the rental truck and the car she hit are badly dented. But she finds relief knowing that the HNOA policy will cover damages to the other car, and her truck rental insurance will help her cover the costs of damage to the rental.
What we learned from Jo:
- HNOA policies can be a limited insurance policy solution for small businesses that use vehicles they don’t own
- HNOA policies only cover damage done to other people/property and are best paired with other insurance policies
Farmer Lucas
Lucas runs a dairy farm, specializing in cheeses. His business is small but established, and he has a regular presence at farmer’s markets and local grocery stores. The business owns a refrigerated van primarily driven by employees. When Lucas bought it, he titled it in the name of the business rather than in Lucas’ personal name and it’s on the farm’s balance sheet as an asset.
Lucas’s employee calls to inform him that they rear-ended someone while making a delivery. After ensuring everyone is okay, Lucas turns to his auto insurance policy. He knows he’s covered because he had to purchase auto insurance when he bought the van– most states require businesses to carry commercial auto insurance for vehicles they own. Revisiting his policy, Lucas is comforted to see that employee drivers with valid driver’s licenses are covered. He also sees that his business is covered for property damage liability. This means Lucas has some coverage for the expense of replacing or repairing the vehicle the employee hit.
Phew! Lucky Lucas! He can expect some level of compensation both for his damaged vehicle was damaged and the other person’s damaged vehicle. Lucas breathes a sigh of relief that he has commercial auto insurance.
What we learned from Lucas:
- If your business owns a vehicle, commercial auto insurance is mandatory.
- Commercial policies are more expensive, but they will cover a wider range of vehicles and uses, and cover any licensed employees.
And so we leave our farmer friends, all experiencing different levels of vulnerability after their accidents based on how adequately they were insured. How can their predicaments help you? One big takeaway here is that any vehicle used for business purposes should be covered by a commercial auto insurance policy. That can be hard to grapple with. The line between business and personal is often blurry for small business owners, and commercial auto policies come with additional expenses. While the exact cost will depend on your unique situation, at the time of this writing small businesses pay an average of $150/month for auto insurance (according to Insureon). Do you need to take on that additional expense to meet your goals? Let’s explore.
Find the situation that is most similar to your own.
My farm/ranch business holds the title for the vehicle(s) we use for work.
- Commercial auto insurance is required for all vehicles owned by a business. If you don’t have a commercial policy, speak to an insurance agent to get covered. If you already have commercial auto insurance, it’s worth retaking a look at the policy to make sure the coverage you want is the coverage you have. Are all of your vehicles on the policy? Are they covered for the activities your business uses them for?
I use my personal vehicle for business purposes.
- The most legally resilient thing to do is pursue commercial auto insurance for your personal vehicle. You can work with an insurance agent to find a commercial policy that allows for personal use. If that’s not possible or too expensive, ask about a business-use endorsement on your personal auto policy.
My farm/ranch business uses rental vehicles and/or employee vehicles to conduct business.
- An HNOA policy may give you the coverage you’re looking for. If you pursue this option, it’s a good idea to clarify with an insurance agent exactly what would be covered in the event of an accident (e.g. damages to all the cars involved or just the one you hit).
Once you understand your risk exposure and tolerance, your next step may be to have a conversation with a trusted insurance agent about how to get your auto insurance coverage needs met. Don’t hold back any details in this conversation. You’ll want to share the specific usage of your vehicles, like transporting irrigation pipes, making deliveries into town, picking up a kid from school, etc. You’ll also want to share how frequently you need the vehicle for each use, if there are any other drivers, and who owns the title.
Finding an agent: If you don’t have a relationship with an auto insurance agent you can call, ask your peers and advisors for referrals for agents they trust who have a good track record of communication and customer support.
At the end of the day, insurance policies are an area where farmers and ranchers can exert their power. By understanding your needs and bringing them into a relationship with a trusted insurance agent (or an agent you can build trust with), you’ll be better equipped to handle whatever comes your way with confidence in the coverage you’re paying for and peace of mind.