It can be very tempting to rely on personal coverage when using a vehicle for business purposes. However, anyone caught doing this when filing a claim will get a tough time from their insurer, as there are strict provisions in place about what is and isn’t covered.
Many small businesses do not have separate autos for private and commercial use, and it is increasingly common to find vehicles that have been insured for family use for a number of years, now being used as the primary company car. It may well be that the nature of the business is administrative with no heavy tools or equipment, and it can be tempting to assume that there is no need to add on more expensive business cover for those visits to clients or to the warehouse for buying stationery. However, most insurers ask applicants whether the vehicle will be used in any way for business purposes and, should a claim arise, they are the experts at detecting when a vehicle has been used for a trip for which it is not insured.
If an accident occurs while using a vehicle for business purposes, it could be very difficult convincing the insurer that you were not using it for business. In order to assess a claim, an insurer (through its claims adjuster) will inquire about your whereabouts when the claim occurred and your purpose for the journey. Discovering that you were on commercial property at the time, visiting a warehouse, or even just because of the time of day, could be very difficult to explain away. This could lead to the insurer refusing to pay your claim, potentially leaving you with a hefty bill to pay to another party, as well as finding the funds for your own damages. Being uninsured or even underinsured could also lead to the other party’s claim affecting your company’s finances.
Most business auto insurance policies have similar types of coverage to personal policies, including physical damage collision, underinsured liability and underinsured property damage. In addition to this, auto insurance usually also includes lease gap coverage, which protects the business against a difference in the insured value and the actual cost of the vehicle if a leased auto is damaged.
Another fundamental difference that a commercial auto policy provides is coverage for other employees, with any individual using the vehicle for business purposes insured. Additional legal protection is usually incorporated as a feature of business policies, something that is not usually included as standard on personal coverage, but a benefit that could prove useful.
Some sources may claim that single-person businesses do not need a separate commercial policy, but according to the Insurance Information Institute, personal coverage is not sufficient to cover the potential costs of business use. As a general rule, commercial policies have higher levels of liability, helping to protect the business in cases of significant loss. In addition, many personal policies specifically exclude any business-related costs, making the coverage no use at all for company purposes.
The same principles which apply to personal coverage also apply to commercial policies. For example, it is possible to get a discount for a good driving record and for taking additional security measures such as keeping the vehicle garaged rather than using public parking. Businesses that rely more heavily on their vehicle, such as on-the-road salesmen, will also be charged a higher premium than those who only need to use it occasionally or for lesser distances.
Another way to lower the premium is to increase the deductible on the policy, a measure that can bring considerable savings. However, the business must be able to afford to pay the deductible in the event of a claim so the level of deductible needs to be realistic.
The Insurance Information Institute also recommends that the business is recorded on the commercial policy as the named insured rather than that of the owner, in order to ensure that in the event of a claim, no confusion arises. With a business auto policy, all employees are insured to use the vehicle for business-related purposes, another reason why it is essential to list the company on the policy rather than one’s own name. All employees of the business are automatically covered, including contract workers (but excluding temporary staff).
With the need for commercial auto insurance, having personal coverage as well may seem excessive, especially as the law prevents double recovery. However, whilst a business policy provides far more coverage and higher levels of liability in many areas, there are some costs that are generally not included as standard.
Medical costs are the biggest omission in a commercial policy, a fundamental feature of most types of personal auto coverage. Medical costs could potentially be added to a commercial policy, but this would need to be arranged via an endorsement as it will not be included as standard. The reason for this is that medical costs would normally be covered by either employer’s liability insurance or worker’s compensation, making the inclusion onto the auto policy redundant. The exception to this is where the nature of the business means that either customers are able to drive the auto, or passengers are driven around by employees.
Coverage for uninsured motorists is something else that is not included in the standard policy for commercial auto insurance. It is possible to specify the amount of uninsured motorist coverage desired when applying for the policy but unless an endorsement is added, the insurance will not apply.
It is not essential to have two separate policies for both business and personal coverage, as some firms offer insurance that combines the two products together by way of endorsement. However, this is usually managed via add-ons to a business policy, rather than the converse.