Understanding auto insurance becomes a bit more complicated when you use vehicles for business and personal use. What's the difference between commercial vs. personal auto insurance, are you covered if an employee drives your car, and how much coverage do you actually need? If your business leases or owns vehicles, or if you use a vehicle for business purposes, buckle up and come along as we demystify auto insurance once and for all.
Personal vs. Commercial Auto Insurance
For small businesses, identifying whether a vehicle is personal or commercial can be a challenging process. There might be scenarios when your employees, or perhaps even you, use personal cars for business-oriented tasks or vice versa.
Here's where it becomes tricky:
Personal auto insurance policies typically exclude business use. If an accident happens while you're performing work-related tasks, your personal auto insurance might not cover a claim if you are involved in an accident, or your vehicle gets damaged.
Understanding Commercial Auto Insurance
Commercial auto insurance becomes necessary when your business owns the vehicle or when the vehicle is used for business purposes. On the surface, commercial policies resemble personal auto insurance, offering coverage for legal expenses, bodily injury, and property damage.
However, commercial auto coverage tends to have a broader scope, covering higher claims, a range of vehicle types, and more complex legal issues.
The cost of commercial auto insurance is influenced by various factors, including the driving records of your employees, the number of vehicles in your fleet, the policy's coverage limits and deductible amounts, and more.
Commercial Auto Insurance: Who's Covered?
Commercial auto insurance offers a wide array of coverage. It shields business vehicles utilized for a broad range of operations, from transporting goods or equipment to carrying passengers for a fee or even towing a business-related trailer.
The beneficiaries of commercial auto insurance typically include all employees permitted to drive your business vehicle. That can include:
- Coverage for you as you transport goods to a customer's house
- Coverage for your assistant when you hand off your car keys and send them to grab lunch for the team
- Coverage for your employees using your business-owned vehicles to make deliveries or transport equipment
Generally speaking, commercial auto will cover your personal use of business vehicles, so you won't need to carry two separate policies for one car.
Understanding Personal Auto Insurance
Personal auto insurance is meant to cover you when driving for personal uses, such as commuting, running errands, or traveling.
However, it's crucial to remember: most personal auto policies exclude business use. So, if an accident occurs while you're performing a task related to work, your personal insurance may not extend its coverage.
Collision vs. Comprehensive Coverage
Just when you think all of your auto insurance decisions are made, there's one more factor to consider: what types of coverage you want.
What is Liability Coverage?
You must carry a certain amount of liability insurance coverage to drive a car. With the exception of Florida, every U.S. state requires mandatory liability coverage if you want to drive a car. Liability coverage helps pay for third-party injuries or damages to another person in the event of an accident.
If you have leased or financed your car, your lien holder will likely require that you carry extra coverage to protect their financial interests in the vehicle. Even if your lender doesn't require it, you may want extra protection to protect your financial interests in your vehicle, too.
This extra protection is typically in the form of comprehensive coverage, collision coverage, or both.
What is Collision Coverage?
Collision coverage comes into play when your vehicle collides with another car or an object or is involved in a single-car rollover. It's your primary defense mechanism when there's direct physical damage to your car involved in a collision.
Imagine you are driving to meet a friend at a coffee shop in town, and your customary route is blocked because of road work. You start punching in the destination in your GPS to find an alternate route and don't notice that the car in front of you has stopped suddenly. You hit the brakes, but it's too late: one large "crunch" later, you realize you've accidentally collided with the car stopped in front of you.
Your basic liability coverage is intended to cover any vehicle damage or medical expenses for the driver in the other car. But if you want your insurance company to pay for repairs to the broken bumper on your own vehicle, you're going to need collision coverage in place.
What is Comprehensive Coverage?
Comprehensive coverage includes scenarios that aren't collision-based. It covers a broad spectrum of incidents, including damages caused by theft, vandalism, fire, natural disasters, or animal-related damages.
Picture this: you're on your way to your local farmers market one weekend when a mature oak tree cracks at its trunk and plummets toward the ground at the exact moment you're driving underneath it. The tree crashes down on top of your vehicle, causing significant damage to your car.
You didn't collide with anyone or anything, and clearly, you are not at fault for trees falling down from above.
But if you want to make sure your insurance company will pay for repairs, you're going to need comprehensive coverage in place.
How Much Coverage Do You Need?
Should you carry collision, comprehensive, or both coverages? Here are a few things to consider:
- Comprehensive coverage may be required by your car's lender or lienholder if you are financing or leasing your vehicle.
- If your car is paid off, what is the value of your vehicle?
- Would you be able to pay out of pocket to repair or replace it if it were stolen or damaged in an accident?
- How much are the annual insurance premiums for collision and comprehensive coverage?
The Insurance Information Institute has a formula to help you make a decision about comprehensive and collision coverage:
Take the amount you'd pay annually for comprehensive and collision coverage, then multiply that number by 10.
If your car is worth less than what you would pay for the extra insurance coverage, it may not be cost-effective to carry both. However, if you can't afford to repair or replace your vehicle in the event something goes wrong, collision and comprehensive coverage could be a good safety net to protect you.
The best way to see how much insurance you need and what it will cost is to sit down with a trusted insurance broker or agent. Partner with a professional to help you determine the right coverage for your car and your needs, and you won't be worried about the high cost of auto repairs or replacements if something unexpected comes your way.