Having personal auto insurance is a legal mandate. According to data, personal auto insurance costs an average of $2,148 annually, which is about $179 per month.
If you occasionally or frequently use your personal car for business use, it makes financial sense to rely on your personal auto insurance to cover your vehicle for business use. According to recent data, rates for auto insurance have increased by 29.6% nationally since 2011, putting a sustained strain on business owners.
However, claims you make for car accidents caused when driving your personal vehicle for business use are not always admissible. Depending on the circumstances, your personal auto coverage may not be enough for business use. You may need commercial auto insurance or hired and non-owned auto insurance policies.
Here's why you can't rely completely on your personal auto coverage for business use and the options you have.
Why Can't Your Personal Auto Insurance Fully Cover Business Use?
Your personal auto insurance will most likely not cover your vehicle when you're doing business-related activities. Most insurers consider business drivers a higher risk than personal drivers since they're expected to spend more time on the road. Therefore, they're likelier to get involved in accidents.
Because of this reason, commercial or business auto insurance costs more than personal auto insurance. If you use your personal vehicle to run business errands, such as attending client meetings or making deliveries, you should consider getting extra coverage.
Typically, insurance companies will define "business use" in the context of car insurance as all sorts of errands you might run for your company or business. These include, but are not limited to the following:
Meeting clients
Making deliveries
Transporting employees or clients
Transporting equipment or supplies
Going to the bank for business
Visiting worksites
Out-of-town business trips
Taking a work call while driving
For some insurers, if you perform business errands with your personal vehicle occasionally, strictly very few times annually, you don't have to get extra insurance coverage. However, you must disclose any business use with your vehicle to avoid being accused of misrepresentation and losing coverage.
What Auto Insurance Options Do You Have for Business Purposes?
Insurance providers typically offer two types of auto insurance coverage for business purposes. These include hired and non-owned auto insurance (HNOA) and commercial auto insurance.
Hired and Non-Owned Auto Insurance (HNOA)
Hired and non-owned auto insurance is the most-recommended auto insurance coverage for business owners who use their personal vehicles to run business errands. It suits self-employed professionals such as consultants and small businesses.
If you have employees or are an employee of a small business relying on the owner's personal car to run business errands, it's the vehicle owner's responsibility to get an HNOA policy.
HNOA provides liability coverage if the business owner or employee gets involved in a car accident while running business errands with their personal vehicle, rental car, or leased vehicle.
HNOA is not a comprehensive policy. It only covers the following:
Third-party property damage
Damage to someone else's vehicle
Legal expenses if the employee or company is sued for damages
Medical bills if a third party is injured
Damages to your vehicle are therefore not covered by HNOA, including medical expenses for the driver in case they're hurt in the accident. Your personal auto insurance typically covers these since HNOA is intended to supplement your personal coverage. You'll need a separate business car insurance policy to cover these gaps, specifically commercial auto insurance.
Commercial Auto Insurance
Commercial auto insurance protects against the cost of accidents involving company-owned vehicles. Like personal auto insurance, getting commercial auto insurance is legally mandated in most states. It can be purchased individually as auto liability coverage or as part of collision and comprehensive coverage.
Commercial auto insurance only covers employees permitted to drive or use the company vehicle. The vehicles must be titled to the company and the employees who drive them and use them for business errands. This includes transporting work equipment and employees or clients.
Commercial auto insurance covers many everyday vehicles, such as vans, passenger cars, pickups, and SUVs. If you have utilitarian vehicles such as tractor-trailers, cement mixers, delivery vans, flatbeds, and cranes, you can cover them if you purchase insurance for larger commercial vehicles.
With most basic commercial auto insurance policies, you get coverage for third-party damages and your own care and repair if you or your driver are at fault. The policy will pay for things like:
Medical bills for you, your drivers, and any passengers injured
Repair bills for your vehicle
Lost wages when the vehicle is out of commission
Pending lease payments if the vehicle was leased and damaged beyond repair
Legal fees if you or your employee were at fault
Funeral expenses if there's loss of life
You can purchase add-ons for your policy, such as Common Endorsements Comprehensive, that covers damage not resulting from a collision, such as weather-related and vandalism.
How Much Should HNOA and Commercial Auto Insurance Cost?
The cost of premiums for HNOA coverage or commercial auto insurance varies across insurance companies. Typically, insurance companies will use the following factors to assess your business driver risk:
The mileage covered
Geographic location
Who owns the vehicle
Vehicle size
Driver age
Business profession
These factors determine the auto coverage your insurance company will offer you and how much the premiums will cost.
The driver's driving record must also be solid, with little to no past incidents or accidents. These factors will also contribute significantly to the premiums you'll have to pay.
How to Choose the Business Auto Insurance You Need
Deciding the right type of auto insurance your business needs involves risk reduction and protecting company assets. Moreover, you must consider state laws regarding the minimum amount of auto insurance your business should have.
You'll often want more protection above the legal minimum to cover most gaps associated with standard business auto insurance policies. Therefore, you can consider getting the following types of coverage above the state minimum:
Collision coverage
Personal injury protection
Comprehensive coverage
Uninsured/underinsured motorist
Talk to an Insurance Expert
You should rely on your personal auto insurance coverage only when driving your personal vehicle for personal reasons. If you are self-employed or run a small business, you should consider getting HNOA or commercial auto insurance, depending on which policy will cover the most risks in your business.
Talk to an insurance expert and learn the auto insurance coverage your business needs.