What is personal auto insurance?
Personal (or private) auto insurance covers your car for everyday, non-business use. It typically includes:
- Liability insurance for injuries and property damage you cause to others.
- Collision insurance for damage to your vehicle from hitting another object, vehicle, or a single rollover accident.
- Comprehensive insurance for non-collision events like weather or animal damage, theft, vandalism, fire and broken glass.
A personal auto policy may include medical payments (MedPay) or personal injury protection (PIP) to cover your injuries and uninsured/underinsured motorist coverage to pay for damage if someone hits you and has insufficient coverage or lacks insurance.
However, it usually excludes work-related driving, like making deliveries, transporting clients and other business tasks. You’ll need business use auto insurance if you plan to use your vehicle for commercial purposes.
What is commercial auto insurance?
Commercial auto insurance, also called business vehicle insurance, covers automobiles used for work purposes, like transporting tools, goods, equipment or employees. Like personal auto insurance, it typically includes liability, collision and comprehensive coverage.
If you rent or lease work vehicles or allow employees to use their personal automobiles for business purposes, you may want to add hired and non-owned auto (HNOA) coverage to your policy.
How much commercial auto coverage you need depends on your industry, the number of vehicles you have and how they are used, among other factors. For example, suppose you own a contracting business with a fleet of vehicles driven daily. In that case, you’ll need more coverage than a freelancer who occasionally drives to and from client sites.
Commercial vs. personal auto insurance
When choosing between business and personal car insurance, it’s important to understand the coverage differences to ensure you have the proper protection. While private car insurance covers personal driving needs, commercial vehicle insurance takes into account the unique risks that come with using an auto for work purposes.
Use the comparison chart below to determine which policy type is right for you.
| Criteria | Commercial auto insurance | Personal auto insurance |
|---|---|---|
| Primary purpose | Covers business-related use, like making deliveries and transporting people or goods | Covers private use like taking family trips, daily commuting and running errands |
| Policy costs | Higher premiums due to greater liability exposure and risk | Typically lower premiums based on personal risk profile |
| Vehicle types covered | Commercial vans, pickups, heavy trucks, fleet vehicles, specialty equipment, tractor-trailers and other automobiles | Personal cars, sedans, SUVs, minivans |
| Liability limits | Higher liability limits to meet business, contract and state requirements | Lower liability limits to protect personal assets and meet state requirements |
| Who is covered | Employees, owners, third parties using their own vehicles for work purposes, rentals, leases | The primary driver and household members |
| Typical usage | Deliveries, rideshare, transporting tools and equipment, making service calls, meeting clients | Driving to and from work and school, running personal errands, road trips |
| Excluded usage | Covers nearly all types of business-related and personal vehicle usage | Business-related driving is typically excluded |
| Policy flexibility | Highly customizable with coverages such as hired and non-owned auto, trailer cargo fleet vehicles | Customizable with standard coverage options |
| Legal requirements | May have to meet contractual, state, and federal requirements depending on profession, vehicle usage and weight | Must meet minimum state auto insurance laws |
| Claim risks | Can cover business and personal claims | Claims may be denied when using the vehicle for business purposes |
| Tax deductibility | Premiums and expenses may be tax-deductible business expenses | Usually not tax-deductible |
When do you need commercial auto insurance?
Whether or not you need business auto insurance depends on vehicle usage and ownership.
“Commercial auto insurance is required in situations where a vehicle is titled in the business name and used primarily for business purposes,” says Kristin Thelen, director of account management for Insureon, a small-business insurance brokerage.
Here are some examples of when you need commercial insurance:
- Driving vehicles owned, leased or rented by the company
- Driving commercial-use vehicles, such as buses, food trucks, bucket trucks and semi-trailer trucks
- Making business-related deliveries or pickups
- Transporting people, goods, equipment, or tools to and from job sites
- Using a vehicle that is branded with a company logo
- Owning vehicles with permanent commercial modifications, such as ladder racks, tool boxes and welding tanks
While all vehicles must meet the state’s minimum coverage requirements, business vehicles may have additional needs. For example, heavy vehicles or those transporting hazardous materials may need to meet specific regulations, like the Federal Motor Carrier Act requirements.
Choosing the right type of insurance policy: A hypothetical case study
Jason T. is a 38-year-old freelance contractor and part-time rideshare driver in Charlotte, North Carolina. He relies on his personal vehicle for his freelance contracting work and driving passengers through a rideshare app. But he’s unsure whether private auto insurance will cover him if something goes wrong during work hours. He’s heard stories of drivers being denied claims due to misclassification and worried it could happen to him.
Jason’s existing policy covers things like pleasure driving, running personal errands or attending family events. But when he uses his vehicle for business purposes, whether driving to a client site or picking up a rideshare passenger, his insurance won’t cover him.
One option Jason could consider is adding a rideshare endorsement to his auto policy. This provides coverage for the periods when he’s driving for rideshare companies like Uber or Lyft.
However, that endorsement doesn’t address his freelance work. If Jason gets into an accident while transporting supplies for his contracting job, his current policy won’t offer the protection he needs, even with the rideshare endorsement.
To ensure he’s fully covered, Jason should consider a commercial auto insurance policy. It will cover all his needs, including personal use, freelance work and rideshare driving in a single policy. By opting for this type of policy, Jason will have peace of mind knowing he’s covered if something happens and won’t have to risk a claim denial.
Commercial vs. personal auto insurance: Which one is more expensive?
According to Thelen, several factors contribute to the cost of commercial auto insurance, including:
- Driver(s) age
- Type of vehicle(s)
- Each employee’s driving record and claims history
- Vehicle usage
- Geographic region
- Radius of operations
Commercial vehicle insurance typically costs more than personal auto insurance because it has higher liability limits and coverage specific to your industry risk and business needs. The more drivers and vehicles you have and the more they are on the road, the more likely you are to file a claim, which poses a greater risk to the insurance company.
Personal auto insurance averages $43 per month for state-minimum liability only coverage. Full coverage policies with 100/300/100 liability limits run about $140 per month.
In comparison, commercial auto insurance policies average $147 per month, according to Insureon.
How to choose the right auto insurance policy
Here’s how to determine whether a personal or commercial auto insurance policy is right for you:
- Work with a knowledgeable insurance professional. An experienced agent or broker can help you determine which type of policy is best based on your vehicle and usage.
- Be honest and upfront. “Honesty is always the best policy when discussing how your vehicles are used,” says Pemberton. “Misrepresenting business use can lead to denied claims or legal trouble, which will cost far more than paying for the correct coverage.”
- Shop around and compare quotes. Whether you need personal or commercial auto insurance, comparing quotes from several companies can ensure you get the best value for your money.
- Check for bundling and discount opportunities. Businesses rarely need just auto insurance. Just like with personal insurance, if you bundle your commercial general liability or commercial property insurance with business auto, you can usually get a discount. There may be other discounts available for more savings.
- Review the fine print. Read the policy details carefully, especially the exclusions, and ask your agent any questions you may have. Make sure you fully understand what’s covered to avoid surprises when you file a claim.
- Finalize and pay for your policy. Once you decide on a policy, make the down payment and download your policy documents and ID cards. Most states require proof of insurance, so make sure each vehicle is equipped with up-to-date insurance cards.
What our expert says
Q: Why is it a mistake to assume your personal auto insurance policy will cover business use?
William Pemberton
Founder of Wisconsin-based Pemberton Personal Injury Law Firm.
“Essentially, you’d be putting your company’s assets and your own personal assets at great risk, and that’s a gamble no one should ever take.”
Frequently asked questions
Does commercial auto insurance cover personal use?
Commercial insurance can cover personal use, but it depends on your policy.
Can I drive a company car without personal auto insurance?
Yes, you can usually drive a company car without personal auto insurance, as long as your employer insures the vehicle and you use it for work-related purposes. A commercial auto policy should cover employees using the vehicle for business.
However, the policy may not cover using the car for personal errands or outside work hours. Check with your employer or company’s insurance provider to understand what’s allowed and not covered.
What does “business use” mean on car insurance?
Business use means driving the insured vehicle for work-related activities beyond commuting to and from a single job site. Business use can include driving to multiple job locations, meeting with clients, delivering goods or people and visiting job sites or vendors.
A standard private auto insurance policy usually won’t cover these activities. It’s important to let your insurer know you’re using the car to avoid coverage gaps.
Do I need commercial auto insurance for rideshare driving?
Having commercial auto insurance is a good idea if you’re driving for a rideshare service full-time. Some carriers offer a rideshare endorsement for your personal auto policy, but it might not provide as much protection as commercial vehicle insurance. Discuss your rideshare activities with your agent to determine whether commercial or personal auto insurance is best for you.
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