Reader Question: I recently started a consulting business. Sometimes I use my car for business. Do I have to get commercial insurance?
First of all, congratulations on starting your own business. That takes courage and perseverance and is to be commended.
So how do you know whether you need personal or commercial auto insurance? Sometimes it can be tricky to draw the line between what personal use of an auto is compared to business use, and the definitions provided by insurance companies are sometimes unclear. You’ll probably hear many specific guidelines, but here’s one that trumps them all: if you use your vehicle at all for business purposes, the odds are you need commercial auto insurance.
What’s the difference between commercial and personal auto insurance?
Personal auto policies don’t appear to differ from commercial auto policies much until closer examination. Both include bodily injury and property damage liability, comprehensive and collision coverage, and various options like roadside assistance depending on carrier.
On commercial policies, though, liability limits are usually available at higher amounts. Personal auto policies generally max out at $500K while you can get up to $1 million in coverage on commercial policies. Even without commercial auto insurance though, business owners should consider buying umbrella insurance to protect personal assets if sued.
One big difference is that commercial policies offer more coverage for supplies and equipment and also provide coverage for the delivery and/or transport of goods and/or people. If you’re delivering anything or anyone, you absolutely need commercial auto insurance; personal auto insurance specifically excludes what’s called “livery” vehicles. Find any pizza delivery driver who’s been in a car accident, and they’ll likely tell you their personal auto insurance didn’t cover it.
Additionally, if the vehicle is titled in the name of a business, you have to have commercial insurance. The exception here is that if you’re a sole proprietor, you can still have personal auto insurance IF you’re not driving the vehicle for business use. If you ever have employees that drive a vehicle owned by your business or you, their personal auto insurance will NOT cover them; it must be insured by you. There are also differences in how many vehicles you can put on a personal policy versus a commercial policy.
Personal auto insurance is cheaper, right?
Not always. Actually, commercial auto insurance isn’t that much more, especially if you find an insurer offering multiple products so you can place all policies with one company and qualify for multi-policy discounts. Often you can get personal auto insurance policies with commercial policies with the same insurer, and still get a multi-car discount AND multi-policy discount, allowing you to save up to 15%. Additionally, statistics show that customers who have multiple policies with one insurer stay with that insurer longer than those who only have one policy with a company, translating to other discounts like loyalty discounts.
Furthermore, prices for commercial policies vary greatly according to how the vehicle is used in the course of business. If you don’t carry passengers, company inventory, or make deliveries, you’ll likely get lower rates.
The best policy really is honesty
Many people place themselves in bad situations by not letting insurers know they’re using a car for business. Sometimes even when people know the cut and dry rule that trumps all commercial auto policy rules, they make serious errors in judgment. This is often because some think personal auto coverage is cheaper.
However, doing so could be a huge mistake, and not one you want to make, as it can end up leaving you without any coverage — maybe for the rest of your life. Some people think, “I’d just go get insurance somewhere else.” The answer usually isn’t that simple; if your policy is cancelled because it was discovered that you were using your vehicle for business when it’s insured under a personal auto insurance policy, your policy can be cancelled by the insurer, or at the very least, non-renewed when up for renewal.
First of all, lapses in coverage can cause premiums to skyrocket. Secondly, some insurers ask if you’ve had policies cancelled or non-renewed by another insurer, as insurers take this as a warning sign that you may present a large risk. You don’t want cancellations and non-renewals on your insurance history, which insurers will discover even if you don’t tell them once they review your Comprehensive Loss Underwriting Exchange (CLUE) report. Additionally, if you make a claim and the company discovers you use the vehicle for business, it can be denied. Future insurers will be able to see past claims on your CLUE report too, even if they were denied claims.
Those are best case scenarios of some challenges you could face by not insuring a vehicle commercially when used for business. If you make a claim and the insurer discovers it stems from business use, you could face multiple insurance fraud charges. Even telling an insurer you only use the vehicle personally when using it for business is fraud. Making a claim on a personal auto insurance policy is another type of fraud, and much more serious.
Not disclosing what you use the car for or what kind of business you’re in places you at risk for being charged with a felony for insurance fraud, not having the policy cover a claim, and you could potentially lose your personal financial assets, like your home or savings, if you’re sued and don’t have the money to pay a judgment. Commercial policy or not, honesty is the best policy when it comes to buying insurance and especially when it comes to your name, reputation, and anything to do with your business.