When should I have a personal auto policy and when should I have a business (or commercial) auto policy? You would think this would be a simple question, but as usual – since we’re dealing with insurance – it’s not.
Before I get into this, let me define a couple things:
First, when I say “personal auto policy” I’m talking about what most people simply call “car insurance.” This is the type of insurance most people have. It is the insurance for cars that are not owned or used by or for a business. When you have a car that you drive to work, to the grocery store, to visit friends, to go on vacation, etc., you get covered on a personal auto policy as opposed to a business (or commercial) auto policy.
Second, a “businesses auto policy” and “commercial auto policy” are the same things. Those two terms are interchangeable. For the rest of this article, I’ll use the term “business auto policy” because it’s shorter than “commercial auto policy.”
Now that we’ve got our terms defined, it’s time to talk about the purpose of this article: what type of auto policy do you need?
For most situations it’s an easy call. When you – a person, not a business entity – own a car – not a heavy weight vehicle – and you use it for those things mentioned above like commuting to work, going on vacation, running errands, taking your kids to soccer practice, you need a personal auto policy. Easy.
On the other end of the spectrum, it’s also an easy call. If you’re a trucker that hauls freight in your semi-truck, or if you are a contractor that has a truck with a cherry picker used to service light poles, you need a business auto policy.
But as we get closer to the middle of the spectrum, the answer is not as clear. What if you deliver pizza? What if you pick up passengers for Uber on weekends? What if you’re a contractor with a pickup truck that drives to the job site? What if you’re a business owner who owns a corporation that owns the car that you use to drive to work on a daily basis? The answers are not as easy to determine.
So how do we determine which type of auto policy you need? Great question. The way I determine is by starting with a personal auto policy and finding out reasons why you wouldn’t fit on it. Why do I do this? Because the coverage on a personal auto policy is very broad and the pricing is usually lower. In other words – if you and your vehicle can fit on a personal auto policy, that’s probably the best place to put you.
Here are the questions I ask to determine whether you fit on a personal auto policy:
1) Do you transport people for a fee? If so, you do not fit on a personal auto policy and you must be insured on a business auto policy. The standard ISO policy (ISO is the company that writes policies that insurance companies either use word for word or base their policies on) excludes liability if you’re transporting people for a fee. What this means is that if you get in an accident and injure someone or their vehicle, your insurance policy would not pay one cent. This would apply if you are an Uber or Lyft driver, or any other type of taxi service. Note that share-the-expense carpooling is not excluded. So don’t worry – you can still pick up your friends, take them to the ball game, have them pay you back for the gas money, and still be covered.
2) Do you transport goods for a fee? If so, you do not fit on a personal auto policy and you have to go on a business auto policy. Like the human transportation exclusion, a personal auto policy excludes liability coverage when you haul goods for a fee. If you are going to be a trucker, moving company, piano mover, common carrier, or some other sort of product transportation company, you need a business auto policy because liability coverage is excluded on a personal auto policy.
3) Do you have a really heavy vehicle? First, when I say ” really heavy vehicle” I’m talking about vehicles that have a greater-than 10,000 Gross Vehicle Weight (GVW) that are not pickup trucks. Some examples would be box trucks, refrigerated trucks, flatbed trucks, pump trucks, dump trucks, cement mixers, and semi-truck tractors. If you have a really heavy vehicle, you do not fit on a personal auto policy and have to be insured on a business auto policy. Liability coverage is excluded for any business use of these types of vehicles on a personal auto policy. Technically, if these vehicles aren’t used for business, coverage still exists. However, personal auto insurance companies are not going to let you insure one of these trucks on a personal auto policy, so if you own one of these types of vehicles and are now wondering which type of policy it’s insured on, the answer is: it’s overwhelmingly likely that it’s insured on a business auto policy.
The three reasons mentioned above are situations where a personal auto policy, were it to be the insurance policy in place when you got in an accident and injured someone and damage their vehicle, would simply not pay the claim. Coverage is excluded.
There are situations, however, where liability coverage may not necessarily be excluded, but personal auto insurance companies generally do not want to insure, and would therefore not offer you coverage were you to apply. Below are examples of those situations. If any of them apply to you, you most likely need to be insured on a business auto policy, unless your personal auto insurer has approved the situation.
4) Are you a business owner that regularly lets your employees drive your vehicle? If so, you might not fit on a personal auto policy. Yes, permissive drivers are usually covered on a personal auto policy, but when non-household members regularly drive a covered vehicle, insurance companies get concerned and feel like the policy is being used in ways that weren’t intended. Some personal auto policy insurers exclude everyone that’s not listed as a driver! Yikes!
5) Does a corporation owns the vehicle, not you personally? If so, you might not fit on a personal auto policy. Note that some insurance companies don’t have a prohibition on corporate-owned vehicles. Others will only accept corporate owned vehicles if the owners of the corporation are the same people as the named insured. For example, if John and Jane Smith are husband and wife and they own ABC, Inc. in full, their car that is owned by ABC, Inc. may still be eligible on the personal auto policy.
6) Do you have advertising for your company on the side of your vehicle? If so, you might not fit on a personal auto policy. Every insurance company has their rules on this. Some don’t care about advertising, and some do.
7) Do you deliver pizza, flowers, or some other item for the company you own or work for? If so, you might not fit on a personal auto policy. This situation is a little different than item 2 above because here there isn’t necessarily a fee involved. In this situation, you are not acting as a haul-for-a-fee service, but you are clearly delivering goods. Papa John’s delivers your pizza for free – you just have to tip the delivery guy. Is there coverage or not? This is very close to the line where on one side coverage exists, and on the other, coverage is excluded. Insurance companies differ on how to handle this. Some of them have outright exclusions, while others prefer to let the ambiguous wording in the policy do the talking.
There you have it: the reasons why you may need to be insured on a business auto policy. If you answered yes to any other questions above, you most likely are best suited to be on a business auto policy. If you’re insured on a personal auto policy now, it’s worth double checking with your agent to make sure you’re covered.