It’s not uncommon for people to use their vehicles for both personal and business reasons. However, where do you draw the line between a personal and commercial vehicle?
Small businesses may have a dedicated vehicle in their fleet or occasionally utilize personal vehicles. However, it leaves a conundrum as to when a personal vehicle becomes a commercial vehicle.
This guide will discuss how these policies work and when you may need to upgrade your personal coverage to commercial coverage.
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What’s the Difference Between Commercial and Personal Auto Insurance?
All personal auto insurance policies will exclude business use. Unfortunately, there are more than six million accidents on U.S. roads annually, meaning there’s a good chance you could find yourself in an accident at some point.
If you’re in this situation, your insurer will automatically void your policy if you were found to have been traveling for work purposes. The only exception to this rule is if you’re commuting.
Only a commercial auto insurance policy can adequately cover business vehicles due to their higher coverage limits and range of add-ons. Note that the cost for business car insurance coverage will typically cost more, which is why many business owners mistakenly believe they can get away with relying on their personal auto insurance policies.
In many cases, small businesses are operating what’s known as multipurpose vehicles. Multipurpose vehicles are used for both personal and work-related journeys. There are three types of insurance policies to choose from.
Commercial Auto Insurance
Firstly, who owns the vehicle? If a car or truck is in the name of a business, it must be covered by commercial auto insurance without exception.
Commercial auto insurance typically possesses double the coverage limits of personal auto policies. Like personal car insurance coverage, it will also pay for legal fees, property damage, bodily injury, and so much more. The complexity of these claims can mean the costs quickly spiral out of control, so an insurer with a high limit is a must.
Another benefit of commercial vehicle insurance is that the business’s employees are also covered when driving the vehicle. Your eventual costs will depend on the number of employees, coverage limits, and your stated deductible.
You may still need commercial auto insurance even if you’re a sole proprietor. It can cover journeys like:
- Performing your work duties
- Transporting goods
- Driving employees/clients
- Charging passengers a fee to ride
- Hauling heavy loads
Commercial auto insurance will usually cover personal use too. This policy will enable you to cover the costs of any accident.
But what happens if you only occasionally use your vehicle for work?
Hired and Non-Owned Auto Insurance (HNOA)
If you use a personal vehicle for occasional work errands, you may be able to take out HNOA coverage. This provides liability coverage if you use a personal vehicle for a work-related journey.
Businesses that take out HNOA commonly rent or lease a vehicle, so their insurance policy is usually short-term and has a defined end.
The downside of HNOA coverage is that it only covers the legal costs associated with an accident. It won’t cover repairs to your vehicle if it’s damaged in the accident. These expenses will need to come out of your pocket.
What’s clear is that HNOA coverage is fatally flawed and is rarely worth taking out unless you decide to rent or lease a vehicle. In most cases, it’s better to pay the extra to get comprehensive commercial auto insurance coverage.
Personal Auto Insurance
Personal auto insurance policies are designed to cover accidents that occur on the roads whenever you are driving your vehicle for personal reasons.
Approximately 87% of U.S. drivers are insured, with the majority being personal insurance policies. But, on the other hand, these policies will only cover you to an extent.
For example, personal auto insurance will typically only cover the main driver and one or two family members. Therefore, your employees cannot drive your vehicle under this policy without invalidating your coverage.
Your policy will not cover business use under any circumstances. Read through the terms and conditions, and you’ll see they specifically exclude business use. For example, if you’re driving for work and you’re involved in an accident, your insurer will not provide any help or support.
Personal auto insurance has only half the coverage of commercial auto insurance, meaning that in an accident, it may not be able to cover the full costs of an accident, particularly if it’s a serious or highly complex case.
Insurers take such a tough stance on the issue because they view business drivers as riskier prospects. For this reason, dedicated auto insurance exists.
Finally, you may also be surprised to learn that some states require commercial insurance for all vehicles used for work purposes. If you’re caught without it, you will be viewed as having no insurance at all.
What Factors Influence the Cost of Commercial Car Insurance?
Determining the costs of your commercial car insurance policy depends on a range of factors. Here are the primary things that influence your insurance costs:
- Industry-related risks
- Type of vehicle
- Number of vehicles covered
- How often are said vehicles used
- Employee driving history
- Type of Coverage
- Policy limits
- Deductibles
- Claims history
Averages can only give you a rough estimate of what you can expect to pay. The only way to find out how much your auto insurance will really cost is to get in touch with the insurer for a quote.
It pays to shop around to ensure you’re really getting the best deal on your policy. For example, you may be surprised to learn that the cost of commercial auto insurance is lower than you think.
Conclusion
Commercial auto insurance is the only policy type that will cover you for business purposes. Therefore, if you drive any vehicle for business, be prepared to pay the extra for the comprehensive coverage only business vehicle insurance can provide.
Take the time to explore your options and ask about any potential add-ons for your policy. It may cost you more but protecting yourself against the high costs of an accident is priceless.
Have you taken out your commercial auto insurance policy yet?
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