Orlando Harmon
The difference between commercial and personal auto insurance is primarily determined by the purpose of the vehicle. Personal auto insurance covers accidents that occur during personal use, such as commuting or running errands, while commercial auto insurance is designed for vehicles used primarily for business purposes. This includes company-owned vehicles and personal vehicles used for business activities like travelling to job sites, transporting goods or equipment, or driving clients or employees. Commercial auto insurance policies also tend to have higher liability limits and cover more complex legal issues, as they are designed to protect businesses from financial losses due to accidents or lawsuits.
What You'll Learn
Who owns the vehicle?
The main factor in determining whether you need commercial or personal auto insurance is who owns the vehicle in question.
If a business owns the vehicle, then commercial auto insurance is necessary. This type of insurance covers the owner, their employees, and even personal errands. Commercial insurance is also necessary if you are a sole proprietor who owns a vehicle used primarily for business. Commercial insurance typically has higher liability limits than personal auto insurance. It can cover cars, trucks, and vans used to transport goods or equipment, drive clients or employees, or perform a service for which you are paid.
On the other hand, if you own the vehicle as an individual, then personal auto insurance is more suitable. Personal auto insurance policies typically insure the owner of the vehicle and one or two immediate family members. They are designed for personal use, such as running household errands or commuting to and from work. Personal auto insurance policies almost always exclude business use, meaning you won't be covered if you get into an accident while driving for work (with the exception of your commute).
In most cases, you will need both commercial and personal auto insurance if you use your vehicle for both personal and business purposes.
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How is the vehicle used?
The main consideration when choosing between commercial and personal auto insurance is how the vehicle is used. If a vehicle is used for business purposes, it will likely require a commercial auto insurance policy. This includes transporting goods, equipment, or people as part of work duties, even if the vehicle is owned by the employee and not the company. Commercial insurance is also necessary if the vehicle is used to drive to multiple job sites per day. However, if the vehicle is only used for commuting to and from work, a personal auto insurance policy is usually sufficient.
Personal auto insurance policies typically exclude business use, meaning that the insurance company will reject a claim if the accident occurred while driving for work purposes, except when commuting.
There are some grey areas when it comes to how the vehicle is used. For example, realtors who use their personal vehicles to take clients from house to house are usually covered by a personal auto insurance policy as long as the vehicle is classified as "Business Use". On the other hand, pizza delivery drivers will almost never be covered under their personal auto insurance due to the high-risk nature of the work.
Additionally, ridesharing drivers such as those working for Uber or Lyft have some coverage provided by the company, but it is usually "contingent" coverage, meaning it will only take effect after the driver's personal auto policy has been applied.
It is important to note that the line between personal and commercial vehicle use can sometimes be blurry, especially for small businesses. In such cases, it is best to consult an independent insurance agent to determine the appropriate level of coverage.
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What type of vehicle is it?
The type of vehicle you drive is an important factor in determining whether you need commercial or personal auto insurance.
Commercial auto insurance typically covers vehicles used for business purposes, including company cars, commercial trucks, and vehicles. This includes box trucks, food trucks, work vans, and service utility trucks. If your vehicle is heavier than a standard pickup or SUV, such as a dump truck, tow truck, semi-truck, or commercial trailer, you will likely need a commercial auto insurance policy. These larger vehicles can cause more damage in an accident and may require special insurance coverages.
Personal auto insurance, on the other hand, covers vehicles used primarily for personal use, including commuting to and from work and travel unrelated to job duties. It usually covers the owner of the vehicle and their immediate family members.
If you use your vehicle for both personal and business purposes, you may need a hired and non-owned auto insurance (HNOA) policy, which provides liability coverage for accidents that occur while driving your own vehicle for work.
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Who drives the vehicle?
When deciding between a personal and commercial auto insurance policy, a key consideration is who will be driving the vehicle.
If you are the sole proprietor of a business and the only person driving the vehicle, you may only need a personal auto insurance policy. This is especially true if you only travel to one or two job sites a day or use your vehicle for commuting. In this case, a personal auto insurance policy will cover you and one or two immediate family members.
However, if your business owns the vehicle, you will need a commercial auto insurance policy. This type of policy covers all employees with valid driver's licenses as additional insureds, meaning every employee can drive the company vehicle. The cost of commercial car insurance is affected by the driving records of these employees, along with the policy's coverage limits and deductible.
Commercial auto insurance typically covers employees who are given permission to drive the business vehicle, even if they are using it for personal reasons. If an employee gets into an accident while driving a personal vehicle for work purposes, a hired and non-owned auto insurance (HNOA) policy would be needed to cover the resulting legal bills.
In most cases, you will need both commercial and personal auto insurance. This is because most personal car insurance policies do not cover incidents related to the business use of a vehicle.
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What is the vehicle used for?
The type of insurance you need depends on what the vehicle is used for. If you use your vehicle for business purposes, you will probably need a commercial auto insurance policy. This includes if you:
- Drive to multiple job sites a day
- Transport goods, equipment, or people as part of your work duties
- Transport heavy tools or equipment
- Have employees driving on your behalf
- Drive for cash
- Log high mileage for work
If you are a sole proprietor who only travels to one or two job sites a day or uses your vehicle for commuting, you might only need a personal auto insurance policy.
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Frequently asked questions
Personal auto insurance covers accidents that occur while you’re driving your vehicle for personal reasons. Commercial auto insurance covers vehicles used for business purposes, whether they’re owned by your company or not.
If your vehicle is owned by a business, it needs to be covered under a commercial auto policy. If you’re a sole proprietor, you might only need a personal auto insurance policy. If you use your vehicle for business purposes, you’ll probably need a commercial auto insurance policy.
Commercial auto insurance policies tend to be more expensive than personal auto insurance policies because they tend to have higher limits, which means more coverage in the event of an accident.
