Understanding the difference between hired auto and non-owned auto insurance is crucial for businesses that use vehicles they don't own. These two types of coverage protect against different scenarios and liability exposures, yet many business owners remain confused about when each type applies and why both might be necessary.
Critical Business Protection
Without proper hired auto or non-owned auto coverage, businesses can face personal liability for accidents involving vehicles they don't own, potentially resulting in millions of dollars in uncovered claims.
Hired Auto Insurance: When You Rent or Lease Vehicles
Hired auto insurance provides coverage for vehicles that your business rents, leases, or borrows for business purposes. This coverage is essential when the rental company's insurance is insufficient or when you want to avoid filing claims that could impact your rental privileges.
What Hired Auto Insurance Covers
- Rental Vehicles: Cars, trucks, or vans rented from commercial rental agencies for business use
- Leased Vehicles: Long-term vehicle leases where your business has regular access to the vehicle
- Borrowed Vehicles: Vehicles borrowed from other businesses or individuals for work purposes
- Equipment Rentals: Some policies extend to rented construction equipment or specialized vehicles
Hired Auto Coverage Example
Scenario: Your construction company rents a delivery truck to transport materials to a job site
Incident: Employee causes an accident resulting in $150,000 in property damage and injuries
Protection: Hired auto insurance covers the claim, protecting your business from direct liability
Non-Owned Auto Insurance: Employee Personal Vehicles
Non-owned auto insurance protects your business when employees use their personal vehicles for work-related activities. This coverage is critical because the employee's personal auto insurance typically excludes commercial use, creating a dangerous liability gap.
When Non-Owned Auto Coverage Applies
- Business Errands: Employees driving personal cars to make deposits, pick up supplies, or visit clients
- Travel Between Job Sites: Workers using personal vehicles to move between different work locations
- Client Visits: Sales staff or managers visiting customers in personal vehicles
- Emergency Response: Employees responding to urgent business matters in personal cars
| Aspect | Hired Auto Insurance | Non-Owned Auto Insurance |
|---|---|---|
| Vehicle Type | Rented, leased, or borrowed vehicles | Employee personal vehicles |
| Primary Use | Temporary business vehicle needs | Occasional business use of personal cars |
| Coverage Trigger | Business rents or borrows vehicle | Employee uses personal car for work |
| Typical Cost | $300-$800 annually | $200-$500 annually |
Key Differences in Coverage Scope
Physical Damage Protection
Hired auto insurance typically includes comprehensive and collision coverage for the rented or borrowed vehicle, protecting against theft, vandalism, and accident damage. Non-owned auto insurance generally provides only liability coverage, as the employee's personal insurance covers physical damage to their own vehicle.
Liability Limits and Structure
Both types of coverage provide liability protection, but the application differs significantly. Hired auto coverage applies to accidents in rented vehicles, while non-owned auto coverage provides excess liability above the employee's personal auto insurance limits.
Coverage Limit Considerations
- Hired auto limits should match your general liability limits
- Non-owned auto often provides excess coverage above personal policies
- Consider higher limits for businesses with frequent vehicle usage
- Umbrella policies can provide additional protection for both coverage types
When Both Coverages Are Necessary
Many businesses need both hired auto and non-owned auto insurance to fully protect against vehicle-related liability exposures. The combination ensures comprehensive protection across all potential vehicle usage scenarios.
Business Types Requiring Both Coverages
- Construction Companies: Rent equipment vehicles while employees travel between job sites in personal vehicles
- Consulting Firms: Rent cars for business travel while employees visit local clients in personal vehicles
- Healthcare Providers: Rent medical transport vehicles while staff make home visits in personal cars
- Service Businesses: Rent trucks for large jobs while technicians use personal vehicles for service calls
Common Coverage Gaps and Exclusions
Hired Auto Exclusions
- Vehicles owned by the business or its employees
- Personal use of rented vehicles by employees
- Racing or competitive driving activities
- Vehicles rented for more than 30 days (may require fleet coverage)
Non-Owned Auto Exclusions
- Vehicles owned by the business
- Regular commuting to and from work
- Personal errands unrelated to business activities
- Vehicles furnished for employee's regular use
Coverage Gap Warning
The most dangerous gap occurs when employees use personal vehicles for business purposes without non-owned auto coverage. Personal auto policies typically exclude commercial use, leaving substantial liability exposure.
Cost Factors and Premium Considerations
Hired Auto Insurance Pricing
Hired auto premiums depend on the frequency of vehicle rentals, types of vehicles rented, and the business's claims history. Companies that rent vehicles regularly may qualify for better rates than those with occasional usage.
Non-Owned Auto Insurance Pricing
Non-owned auto costs are typically based on the number of employees who might use personal vehicles for business purposes and the scope of their driving activities. Businesses with many employees requiring travel generally pay higher premiums.
Claims Process Differences
Hired Auto Claims
Claims for hired auto coverage typically involve coordination with the rental company's insurance. Your hired auto policy may provide primary or excess coverage depending on the policy terms and rental agreement provisions.
Non-Owned Auto Claims
Non-owned auto claims usually involve coordination with the employee's personal auto insurance. The non-owned coverage typically provides excess protection above the personal policy limits, unless the personal coverage is unavailable or insufficient.
Claims Best Practices
- Report all vehicle accidents immediately, regardless of fault determination
- Document the business purpose for vehicle use at the time of the accident
- Obtain copies of all rental agreements and employee driving records
- Coordinate with all involved insurance carriers to prevent coverage gaps
Legal and Regulatory Considerations
State Requirements
Some states require businesses to carry non-owned auto insurance if employees use personal vehicles for work purposes. Additionally, certain industries or contract requirements may mandate specific coverage levels for both hired and non-owned auto insurance.
Contract Requirements
Many business contracts, especially in construction and service industries, require contractors to maintain hired auto and non-owned auto coverage as part of their insurance obligations. These requirements ensure protection for all parties involved in business relationships.
Selecting the Right Coverage
Assessing Your Business Needs
- Evaluate how frequently your business rents or borrows vehicles
- Assess the extent to which employees use personal vehicles for work
- Review existing insurance policies for potential gaps or overlaps
- Consider contractual requirements and industry standards
Working with Insurance Professionals
Given the complexity of hired auto and non-owned auto coverage, working with experienced commercial insurance agents is essential. They can help identify specific exposures, recommend appropriate coverage limits, and ensure proper coordination with existing insurance programs.
Expert Recommendation
Most businesses benefit from carrying both hired auto and non-owned auto coverage, even if current usage seems limited. The relatively low cost of this protection far outweighs the potential financial devastation of an uncovered vehicle liability claim.
Get Your Custom Quote TodayConclusion
Understanding the differences between hired auto and non-owned auto insurance is crucial for protecting your business against vehicle-related liability exposures. While hired auto coverage protects against accidents in rented or borrowed vehicles, non-owned auto coverage addresses the risks associated with employees using personal vehicles for business purposes.
Both coverage types serve essential but distinct functions in a comprehensive commercial insurance program. By properly implementing both hired auto and non-owned auto coverage, businesses can eliminate dangerous liability gaps while maintaining the operational flexibility to use various types of vehicles as business needs require.
The key to effective coverage is understanding your specific business operations, honestly assessing vehicle usage patterns, and working with knowledgeable insurance professionals to design a program that provides complete protection at a reasonable cost.