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Commercial vs. Personal Auto Insurance - When Do Small Business Owners Need Commercial Coverage?


Auto insurance policies typically fall into one of two broad categories: commercial or personal. If you use a vehicle for business purposes, you need commercial insurance. If you use it for personal purposes, personal insurance should do. It sounds simple – but it’s often not.

The line between personal and commercial usage can become blurry, especially for small business owners. Here’s how to determine what type of coverage you need.

Why the Difference Between Commercial and Personal Car Insurance Matters

As long as you have some sort of car insurance, you might think the type of policy isn’t all that important – and you’d be wrong.

Most personal car insurance policies exclude commercial usage. This means that if you get into a crash while using your personal vehicle for business purposes, you might not have any insurance coverage.

The policy limit is another important factor. When buying personal auto insurance coverage, many people stick with the minimum requirements under state law. In Hawaii, drivers need $10,000 in personal injury protection per person, along with liability coverage of $20,000 person or $40,000 per accident in bodily injury liability and $10,000 per occurrence in property damage liability.

Commercial auto insurance tends to have much higher liability limits – often $1,000,000. Although this might seem like a lot, it’s important to remember that people will often sue companies for large amounts. Recently, juries have been awarding jaw-dropping sums, sometimes called nuclear verdicts, making high limits more important than ever.

The Fine Line Between Commercial and Personal Car Insurance

If a car is used for business purposes and owned by the company, you definitely need commercial coverage. If, on the other hand, the car is owned by you as an individual and used only for personal reasons, including commutes, you should be fine with personal coverage.

But reality isn’t always this clear cut.

As a business owner, you might use your personal vehicle for work purposes occasionally. For example, you might use it to pick up supplies, or to drop off deliveries, or maybe to move equipment or even tools around.

So, what happens if you get into a crash while engaging in these business-related tasks? You could be sued. Your business could be sued. And if you don’t have commercial coverage, you might be on the hook for the costs. That’s not a situation you want to find yourself in.

Many people use their personal vehicles for work, and coverage exists for this common situation. Hired and non-owned car insurance, for example, is a type of policy that a business can purchase to cover vehicles it doesn’t own.  

Don’t put your business at risk. If you regularly use your personal vehicle for business purposes, talk to your FICOH agent about commercial coverage options.

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