Commercial Vs Personal Auto Insurance: What’s The Diff?

Car Insurance

Jan 19th, 2021

Commercial Vs Personal Auto Insurance: What’s The Diff?

Everyone who owns and operates a car will already know about personal auto insurance. What many don’t realise, however, is that there exist other types of auto insurance as well, such as commercial car insurance. Generally, both commercial and personal auto insurance types share the same purpose: to act as a financial buffer for the vehicle owner in cases of loss and damage.

So, what’s the big difference between these two types of car insurance? Which one is better at catering to your needs?

Well, that’s what we’re going to figure out in this article. In the next few sections, we will look at how commercial and personal auto insurance types differ from one another. Then, we’ll explore the question of whether or not commercial insurance protects you when you drive the vehicle for personal use.

By the end of the article, you should be able to make a well-informed decision in the commercial vs personal car insurance discussion.

How Do Personal and Commercial Auto Insurance Differ?

As mentioned before, both types of auto insurance are designed to protect the vehicle’s owner from loss and damage. That could be anything from road accidents to car thefts. However, they differ from one another on three aspects: the vehicle’s ownership, the vehicle’s purpose, and the conditions where the coverage will apply.

Vehicle Ownership

The first question that we should ask is, “Who owns the car?” If you own a car, which is registered to you as a private citizen, the only type of coverage you’ll need is the kind you get from a personal auto insurance policy.

However, if you plan to buy a vehicle to register to your company or business, that’s a different story. If you or your employees are using the car for work reasons, you probably won’t be protected by a personal policy and need commercial auto insurance instead.

The same is true if you’re a sole proprietor or a one-person business, like if you make a living as a tradesperson. A personal auto insurance policy will probably not cover your ute or car if you’re using it to carry your tools and materials to job sites every day.

Purpose for Use

Another factor that separates the two types of auto insurance is the vehicle’s purpose. Are you using it for personal daily activities like commuting to work and going to the gym? Or, are you also using it to go to business meetings and to visit construction sites?

In this day and age, many people are using their personal vehicles to work for rideshare services. Typically, local authorities consider that type of driving to be a commercial activity, requiring more than just conventional, personal auto insurance coverage.

Sure, you could continue using a personal auto insurance policy. Many people still try to get away with doing that, and that’s unfortunate. 

You should be aware, however, that the insurer has every right to cancel your policy if they discover that you’re using that car as a commercial vehicle. If you look at the fine print, you will find that it’s a violation of the terms of the insurance policy. 

Even if they don’t, you may find yourself facing problems when trying to file an insurance claim if you ever get into an accident on the road. Violating insurance policy conditions is one reason why some insurance claims are denied. That’ll defeat the purpose of having an insurance policy in the first place!

Coverage Options

Car insurance policies will also differ in the types of situations that they cover. Like in the previous example, personal auto insurance will not cover you if you’re using the car for commercial reasons.

So, suppose you have a personal auto insurance policy, and you get into an accident while driving for a rideshare service. You may face problems trying to file an insurance claim if the company discovers that you were using the vehicle in commercial situations not covered by the policy.

This also works the other way around, as some commercial insurance policies don't cover the vehicle if used for personal reasons. That's why businesses that assign company cars to their employees have specific instructions for situations where the vehicle is used for personal reasons. 

Does Commercial Auto Insurance Cover Personal Use?

It depends. Employees typically have to request permission from their company if they want to use a company car for personal use. That’s because the commercial auto insurance policy on that car may or may not cover situations involving personal use.

Suppose an employee uses the company car for personal reasons without securing permission from their employer and gets into an accident. If the commercial auto insurance doesn’t cover the vehicle against damage during personal use, the employee may be liable for the damage and pay for it themselves.

What Does Commercial Auto Insurance Cover?

Commercial auto insurance typically covers against theft and damage to the vehicle, and may also offer liability coverage. That means the policy will also help pay for legal fees surrounding an accident where an employee got into a car accident while driving for official reasons.

What Affects the Price of Commercial Auto Insurance?

Just like personal auto insurance, many factors can drive the cost of commercial auto insurance up or down. 

For starters, the cost will depend on the type of vehicles being covered and their dollar value. A company’s 18-wheelers will surely cost much more to insure than its 4-door sedans, for instance.

At the same time, commercial vehicles face higher liability risks, too. Suppose a company car gets into an accident on the highway, causing damage and injury to a third party. That’s the company’s liability and may need to pay legal fees to those affected. As a result, that becomes another issue factored into their commercial auto insurance coverage.

Fortunately, some factors can lower commercial auto insurance costs, too. One such factor is if the company has dozens or hundreds of cars it wants to insure. Think of that as a ‘bulk discount’ where the average cost to insure a company’s cars is lower if more vehicles are under the same policy.

Still, it's important to remember that all insurance policies, personal or otherwise, are entirely customisable. Commercial auto insurance costs will also depend on what coverage options they choose to include in the policy.

Read More to Learn More about Car Insurance Topics!

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By Ray Hasbollah