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Commercial Auto vs. Personal Auto vs. Business Auto

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency...

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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If we haven’t lost you already, read on and we’ll try to provide a basic overview of the differences between three common types of auto insurance policies.

It’s no wonder that we can get a little lost when dealing with the proper way to insure ourselves against liability and property damage claims that result from the operation of a vehicle, as there is definitely some gray area and overlap.

What Are the Similarities?

The similarities between the three types of policies mostly deal with the basic coverage they offer. You can expect to have liability coverage (including bodily injury and property damage) and will have the option to purchase physical damage coverage, in the form of comprehensive and/or collision.

Liability coverage is designed to insure you against injuring someone else or damaging their property.

Physical damage coverage is purchased to protect your property. In this case, your car or truck. Physical damage coverage is not mandatory, unless you lease your vehicle or got a loan to buy it.

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What Are the Differences?

The differences do not necessarily involve the coverage, although commercial and business auto policies may offer coverage that is not available on a personal auto policy. More on that below.

The main differences between these policies have to do with the “exposure” that’s associated with the vehicle’s use. Commercial and business auto policies present a higher level of risk to the insurer. Why?

Typically, business use involves a lot more drive time for a vehicle, as the car is being driven around (theoretically) throughout the day. The more you’re on the road, the higher the chance of an accident.

Think of it this way. Most of us wake up, drive to work, and then park our car for 8-10 hours. The chances of causing an accident is quite slim while we’re sitting in our cubicles at the office.

Conversely, the real estate agent who is driving from house to house all day has a much higher chance of being in an accident.

And the exposure for a true commercial auto policy can be much higher than business and personal auto. There are too many different types of commercial risks to go through here, but picture an 18 wheeler or a cement mixer cruising down the road at 55 miles per hour and you’ll get the picture.

Another major difference between these policies is how much liability coverage you need. The bottom line is that you will likely need much higher coverage limits for a business or commercial auto policy than for a personal auto policy.

Individuals and attorneys can smell blood in the water when dealing with businesses rather than individuals who cause accidents.

Now let’s look at some of the basics for each type of policy to help you determine where you fit.

Personal Auto Basics

Most of us fit into this category. We buy a car simply to commute…whether it’s to work every day or to the grocery store. The personal auto policy is designed to “cover” us against financial losses we may suffer by causing an accident.

You are, hands down, a personal auto exposure if your vehicle’s use fits this description. You should still read about what liability limits you should have if this is your “bucket.”

It is important to note that personal auto policies usually allow you to let anyone drive your car (with your permission), with the exception of the Broad Form policy.

Business Auto Basics

This is the gray area we referred to earlier. You’re not driving a school bus or transporting “oversized” loads on the freeway, but you’re also not driving to work and parking your car for 8-10 hours per day.

Perhaps you’re in the “sales” industry, visiting multiple clients daily, or a contractor/handy man, driving a one-ton pickup truck.

These types of exposures may qualify for a business auto policy. Many personal auto insurers even offer “business use” coverage on a personal auto policy for a slightly higher charge. Think real estate agent more than contractor for this though. If you have a sign and a ladder rack on your F350 Dually, you’re likely a commercial auto candidate.

Again, this coverage is for those of us who use our car to make money by driving around. If, similar to your laptop, you cannot operate your business without your car…this may be you.

Business auto policies may have restrictions that allow for a certain number of “stops” per day. Stops can be thought of as stopping your vehicle at different locations. For example, if you make more than three to five “stops” per day, your insurer may not offer the business use option to you.

Tip: If you are “commercial,” you need a commercial auto policy. Personal auto insurance policies have a Commercial Exclusion. If you try to “get by” without the proper coverage, a claims adjuster will sniff out your commercial activities and deny your claim outright…it’s not worth it.

Insurers have seen it all and rarely get duped into paying claims for the “contractor” who tries to save a buck by foregoing the commercial policy.

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Commercial Insurance Basics

This one isn’t that difficult to grasp. Of course, the 18-wheeler and cement mixer fit into this category. Additionally, companies that have multiple units, like a pool service company, would fall under commercial auto.

Commercial auto also offers coverage not available on the personal and business use programs. For example, you can purchase “hired” and “non-owned” coverage on this policy form.

Hired auto coverage would come into play if you “hired” other people to do some of the driving for your company (people who are not listed on the policy itself).

The non-owned coverage part is designed to insure you against financial loss from anyone who drives THEIR OWN vehicle while in the course of your business. This may be asking an employee to drive their own car to pick up paperwork for you at another location. If your employee causes an accident while driving their car for your company you will certainly be a named party to the lawsuit.

Additionally, the commercial auto policy offers options to cover “any owned” vehicle. This would allow a large company to avoid calling their agent every time they switched out a vehicle (think a fleet of 200 trucks). Also, you can get coverage for forklifts and golf carts with this type of policy. Try getting coverage for a forklift on your personal auto policy!

Finally, substantially higher liability limits are typically offered on the commercial auto policy. Commercial risks are typically more dangerous and companies usually have a lot more to lose than an individual.

Hopefully now you’ve got a better grasp of the three major auto insurance policies available, along with their similarities and differences.

But it’s pretty complicated stuff, so be sure to consult an independent insurance agent to discuss your exact operations and coverage needs. Saving a few bucks when you purchase your policy isn’t worth the risk of being on the hook for an uncovered claim.

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