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Commercial vs. Personal Auto Insurance: Why You Need to Know the Difference

Plus, what it could cost you if you don’t have the right vehicle coverage.

Sure, commercial auto policies and personal auto insurance both cover the risks associated with driving a car or other vehicle. However, there are some critical differences that could have a big impact on your financial future and the future of your business. Here’s what you need to know to get the coverage that’s right for your personal life, that of your employees and all of your business driving needs.

Commercial vs. personal auto insurance

Most small business owners aren’t clear about the differences between commercial and personal auto insurance and what they cover. It’s understandable. The line between the two is often a little blurry. That’s because business owners and their employees often use their personal cars for business reasons. For example, they use their car to travel to a job site, make a delivery or get to a sales presentation.

In the same way, employees sometimes use company cars for personal reasons. For example, an employee driving a business-owned vehicle drops their kids off at school on the way to work or stops to pick up groceries on the way home.

It’s clear that commercial auto insurance covers vehicles owned by a company and used for company-related purposes and personal auto insurance covers a personal car used for personal reasons.

But which type of policy covers multipurpose vehicles? Let’s take a look at the two types of policies to find out for sure. 

What does commercial auto insurance cover?

If you own a vehicle that’s used primarily for business, it’s likely you’ll need a commercial auto insurance policy. It covers vehicles used for purposes like:

  • Driving to job sites
  • Picking up supplies for work
  • Getting to meetings or service appointments
  • Moving equipment to job sites
  • Transporting equipment and goods
  • Driving clients or co-workers to the airport for a business trip
  • Offering rides in your vehicle that you charge for
  • Making deliveries
  • Towing a trailer for business purposes
  • Performing any service that you or an employee is paid to do.

Commercial auto insurance isn’t just for big trucks, vans or customized business vehicles. People driving everyday cars and pickup trucks may also need — and can benefit from — commercial auto coverage.

The simplest case for commercial auto insurance is that if your business owns a vehicle, it must be covered by commercial auto insurance. Similar to your personal car coverage, it will pay for legal expenses, bodily injury and property damage related to auto accidents, along with vehicle-related thefts. Typically, commercial auto insurance covers higher claims, a wider range of vehicles and more complex legal problems. That’s because business vehicles are typically more expensive, policies cover multiple drivers with different levels of driving experience and vehicles used for business purposes and on job sites typically face greater risks.

Some of the things covered by commercial auto insurance include:

  • Medical payments to cover accident-related injuries to you or an employee
  • Similar payments to injured people who are not in your vehicle
  • Property damage caused by an accident
  • Towing, repairs and vehicle replacement (if it’s totaled) after an accident
  • Rental car reimbursement while a vehicle is being repaired
  • Underinsured motorists (when another driver’s coverage isn’t adequate to cover your costs)
  • Comprehensive coverage, including theft, vandalism or weather-related damage.

Did you know: Commercial auto coverage typically covers employees who are allowed to use a business vehicle, even if they have an accident while driving for personal reasons?

>>MORE: Why do You Need Commercial Auto Insurance?

What does personal car insurance cover?

Personal car insurance covers accidents that occur while you’re driving a car you own for personal reasons or a close relative, such as a spouse or child drives your car.

In addition to anything that you drive to for non-business reasons, some work-adjacent situations that personal auto policies cover include:

  • Going to and from work
  • Going out to lunch with colleagues or picking up your lunch at a fast food place  
  • You and your team drive to a bar after work.

Personal auto policies cover all the same things business ones do. The only difference is that coverage will only kick in if an accident happens while the car is being used for personal reasons.

Tip: In some cases, personal auto insurance might include extremely limited coverage for business related use. Check with your insurance agent or insurance company rep to find out exactly what is and isn’t covered by your policy.

Who is covered by business and commercial vehicle insurance 

A personal auto insurance policy typically covers the owner of the vehicle, and in most cases, their immediate family members. If a friend borrows your car to run an errand, they most likely won’t be covered if they’re involved in an accident.

Similarly, if someone who works for you uses your vehicle to go pick up donuts and is involved in an accident, they likely wouldn’t be covered under a personal auto policy. In short, commercial auto insurance covers you, your employees and any other people in vehicles used for business reasons.

Who needs commercial auto insurance?

Most states have laws that make it a requirement for business-owned vehicles to be covered by commercial auto insurance. Add to this the fact that most personal auto policies come with extremely limited or no liability coverage when cars are used for business purposes, which means drivers or a business could be held responsible for costs related to an accident that happens while doing things for work purposes. For these two reasons, if you or anyone who works for you drives a vehicle owned by your business, or a personal car for business purposes, it should be covered by a business auto policy.

Two other options: If you or someone who works for you mostly uses a personal car for running errands, shopping and chauffeuring the kids around and only occasionally for business, you may not need commercial auto insurance. Options like a personal auto policy with limited business coverage or a hired and non-owned auto insurance policy may be good options. 

Hired or non-owned insurance may provide liability coverage if you get into an accident while driving your own vehicle for work purposes. It also provides protection when a business rents or leases a car. The only issue with this type of coverage is that it only covers legal bills resulting from an accident, not physical damage. It won’t pay for repairs if your auto is damaged in an accident. 

An insurance agent or company representative can help you figure out if either of these could provide adequate protection.

The cost of commercial auto insurance vs. personal car insurance 

Commercial auto insurance policies typically offer broader coverage and higher liability limits than personal ones. Many businesses also cover vehicles that are costly to repair or replace. Add to this the fact that businesses typically insure multiple drivers with different driving records and skill levels and the result is that the typical business auto premium is higher than a personal one.

On average, the commercial auto insurance cost is $900-$1,200 a year for small businesses.

The factors that go into calculating a business auto premium include:

  • Industry-related risks
  • The types of vehicles
  • The number of vehicles
  • How often vehicles are driven
  • Employee driving records
  • The types of coverage you choose
  • The policy limits you select 
  • Vehicle insurance claims history.

When you get a business auto quote, you will need the following information:

  • The number of vehicles you are insuring 
  • The types of vehicles being covered
  • The age and model of the vehicles
  • Who will be driving them 
  • What the vehicles are used for.

If you have questions about getting the right business auto coverage at a fair cost, consult with your insurance agent or insurance company representative.
Be aware: Commercial auto insurance doesn’t have to be costly. It all depends on the specifics of your business. A small business where one or two people drive a company car will have a much lower premium than a larger company with a fleet of vehicles and many drivers. Plus, if you shop around, you may find a lower cost policy with a different insurer.

>>MORE: How Much does Commercial Auto Insurance Cost?

Best commercial auto insurance companies

It is often that insurance companies that sell personal car insurance policies also sell commercial auto insurance. However, the best companies for personal car insurance might not be the best for commercial auto insurance. We research several companies offering commercial auto insurance and here are our recommendations of the 10 best commercial auto insurance companies for your consideration.

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