Auto insurance is auto insurance right? What’s the big deal if my vehicle is used for work and my home life?
Unfortunately, personal auto insurance and commercial auto insurance are not the same. In fact, it can seem like people speaking 2 different languages when you are new to it. Let’s do a brief overview of each and then we’ll note the similarities and differences.
Personal Automobile Insurance
Personal Auto Insurance is designed for individuals and their family members primarily residing in the same household. Even this first sentence can be tricky when it comes to certain life situations that can impact anyone like divorce, having a roommate, shared custody, children away at college, caring for a parent or grandparent in the home. Since the language used in the personal auto policy is very specific about who is and isn’t covered depending on the situation, it’s best if you review your particular situation with a licensed agent.
Moving on from the hot potato of who is covered by the policy we get to what is covered. Personal Auto policies are for insuring private-passenger-type autos owned by individuals. The policy may be structured to provide a combination of liability, personal injury protection, medical payments, uninsured and under-insured motorists, and physical damage coverages.
In laymen’s terms, a personal auto policy is designed to provide coverage for the vehicle owner and its operators in the event of injury or damage caused to another person or another’s property as well as damage to the vehicle itself.
Commercial Automobile Insurance
Commercial Auto Insurance is designed to meet the various auto insurance needs of any type of commercial entity. This includes coverage for repair shops, car dealers and truckers as well as any business that owns and uses vehicles in running its operations.
Some of the coverages are very similar: liability, uninsured/underinsured motorists, medical payments and physical damage. However, a business can have more exposure due to its daily operations which requires more specific or extensive coverage.
So what do these 2 very different types of coverage have in common?
- Liability coverage is required by law in most states so you will see it on both commercial and personal auto policies.
- All drivers and household members with access to vehicles are considered when determining premium for an auto policy.
- No matter if your policy is personal or commercial it is important to let your agent know WHO OWNS THE VEHICLE (what name is listed on the title). If the vehicle is titled to you personally, it should be on a personal auto policy unless it is used solely for business. If it’s titled in the name of a commercial entity, it should be on a commercial policy. Some companies will allow vehicles titled in the name of the owner of the company to be on the commercial policy as well.
- Both policies give you the opportunity to purchase uninsured/underinsured motorist coverage and physical damage coverage. Uninsured/underinsured motorist coverage provides additional funds if you are involved in an auto accident caused by another who doesn’t have enough insurance to pay for the damages / injuries. Physical damage coverage allows you to purchase coverage that will repair damage to the auto covered under your auto policy.
- The way a vehicle is used can impact your premium with both types of policies. Do you use your personal vehicle for business (sales calls)? Does your business do a lot of deliveries? How far away from your location do your vehicles travel on a regular basis? Do you drive to work or do you use the vehicle only rarely?
There are other things personal and auto insurance policies have in common but now let’s move on to some major differences.
With a personal insurance policy, liability coverage follows the vehicle.
For example, if you own a trailer or camper that is insured on a personal policy, more than likely the only coverage you have for it is physical damage coverage. When the trailer or camper is being pulled by a vehicle covered under yours or anyone else’s personal insurance policy, liability extends to the trailer or camper from the vehicle. So, if Bob borrows Joe’s trailer and there is an auto accident in which the trailer causes damage to a 3rd party, Bob’s liability coverage that he has on the vehicle that pulls the trailer will pay the claim.
This is completely opposite on a commercial insurance policy. Each trailer must have liability coverage for itself. If Business A loans a trailer to Business B and Business B has an auto accident in which that trailer causes damage to a 3rd party, Business A’s insurance will pay the claim because the liability coverage comes from the policy of the owner of the trailer.
Drivers with permits or under the age of 18 are expected on personal auto policies.
Personal auto policies also have discounts available to help decrease the higher premium that can be generated by a youthful driver. Not the case for commercial insurance. Most insurance companies will not allow drivers under a certain age to be insured on a business’ policy. Furthermore, if the company can be persuaded to allow a youthful driver it can be under specific restrictions and cost.
The definition of a vehicle insured on a personal auto policy is a private-passenger type vehicle as noted above.
However, the definition of a vehicle insured on a commercial auto policy can be extremely broad. The coverage can be determined by ownership, usage and type of business. A commercial auto policy has a specific section that outlines what types of vehicles are covered and for what coverage. It will also contain a listing of vehicles like a personal auto policy; however the commercial policy listing can include items like mobile equipment and non-owned autos.
A personal auto policy gives all the drivers listed on the policy coverage no matter what vehicle they are driving – even if it is one they borrow one from someone else.
A commercial auto policy provides coverage for the drivers listed on the policy only when they are driving vehicles that the policy designates as covered. Doing so protects the business from any fallout caused by an employee’s driving on his/her personal time. However, the owner of the business and his/her family may need to add more coverage to their business policy if they don’t have a personal auto policy to provide them with coverage as drivers in any situation.
Commercial auto policies can be designed to provide coverage for test driving vehicles, transporting cargo from Iowa to Washington or pizza delivery in the employee’s own car.
In this way it is a far more flexible policy than a personal auto policy.
No matter what kind of policy you think you need, discuss with a licensed agent. They are your best guide to what will protect you the most.