When you started your business, using your personal car for business activities was unavoidable. As your business has grown and the mileage you’re racking up for business travel has increased, your personal auto insurance may no longer be sufficient. It may be time to consider switching to commercial auto insurance.
The Difference Between Personal and Commercial Auto Insurance
Personal auto insurance is for private passenger vehicles. It covers personal trips and leisure driving in addition to commuting to and from work.
Commercial auto insurance is tailored for business driving. It takes into account the fact that vehicles are on the road more often and covers a wide range of commercial vehicles from vans to dump trucks. It also covers specialized vehicles such as food trucks, landscaping vehicles, and trade vehicles. Commercial insurance is more expensive because the risk is higher on business vehicles and, therefore, liability limits are higher.
What to Take Into Consideration
1. The type of business entity
If you are a sole proprietor or in a partnership and don’t travel frequently for business purposes, personal auto insurance should suffice. If, however, your company is registered as a corporation or Limited Liability Company (LLC), commercial auto insurance is advisable.
If you’re still deciding on a structure, consult an attorney for legal advice. You can also do some research on sites like Freeadvice.com that explains the various business entities and incorporate.com that assists with incorporating a business.
2. How often the vehicle is used for business purposes
If you occasionally use your personal vehicle for business purposes, most personal auto insurance policies will continue to cover your vehicle. An example is self-employed people like freelancers who occasionally drive to meetings with clients. If your insurance doesn’t cover any business usage, look for alternative insurance. The Zebra compares insurance quotes and can help you find the right insurance to fit your needs and budget.
If your business transports products or people, is used for deliveries, is rented or leased by others, or you visit clients weekly; your personal insurance won’t cut it. The Department of Motor Vehicles states that vehicles used regularly for business purposes must have commercial auto insurance.
3. The type of vehicle and what it is used for
Heavy duty and specialized vehicles that are used to execute work such as delivery vans, dump trucks, long-haul trucks, and vehicles transporting hazardous material all require commercial auto insurance. This also applies to contractor vehicles fitted with trade equipment and vehicles with modifications like tow trucks or snowplow vehicles. If you use your car to provide a taxi or chauffeur service, you should also switch to commercial insurance.
4. Do employees use their personal vehicles for business?
When your business expands and you start employing more staff, assess how often they’re using their personal vehicles for work. If employees are using their vehicles frequently to perform their duties, it’s time to investigate a commercial insurance policy that will cover employees’ vehicles.
5. Is it a business-owned or leased vehicle?
If the business owns one or more vehicles and you have employees that drive the business’s vehicles, commercial auto insurance is a must. You can have a separate policy for each driver or one policy that covers all drivers. Leased vehicles also require commercial auto insurance.
The Types of Commercial Auto Insurance Coverage
Both commercial and personal auto insurance provide similar cover, but commercial is more comprehensive and has higher liability limits. Personal insurance provides up to a maximum of $500,000 in liability cover while commercial insurance can cover $1 million and more. It also protects your vehicles against damage caused by fire and natural disasters. Commercial auto insurance typically covers:
- Bodily injury liability: Covers injury or death of the occupants in the other vehicle if the accident is your or an employee’s fault.
- Property damage: Covers an accident that results in damage to someone’s property, e.g., losing control of the vehicle and hitting someone’s fence or house.
- Comprehensive coverage: Applies when your vehicle sustains damages, including damage not sustained in an accident, e.g., a tree falls onto your car, flooding, or vandalism.
- Collision insurance: Covers damage to your vehicle from a collision with another vehicle.
- Medical payments: Covers medical costs should you, or your passengers were injured.
- Uninsured/underinsured motorist: Protects you should the at-fault driver have too little or no insurance.
- Personal injury protection (PIP): Applies in states that follow the no-fault rule and will cover injury-related costs.
Some insurance companies also offer rideshare insurance for drivers who work for companies like Uber and Lyft.
Remember, it is better to err on the side of caution. Personal auto insurance is cheaper, however, when the time comes to claim, will your vehicle be covered? Investing in the right insurance for your business vehicle provides peace of mind and will minimize downtime when the vehicle is being repaired or replaced.