Even though personal auto and commercial auto policies are a packaged product and contain many of the same coverages, there are distinct differences that are very important. Most every contractor will use a pickup truck or van for work that is insured on their personal auto policy. Doing so puts the vehicle owner at risk for several reasons:
- Personal insurance policies exclude coverage when the vehicle is being used for business. If the insured is driving a van for work purposes and is involved in an at-fault accident, according to this exclusion in the policy, the company can elect not to pay the claim. Why aren’t most drivers aware of this? They never read the terms of the policy and typically forget warnings from an agent the minute they leave the office or hang up the phone.
- Typically, the personal auto liability limit is $300,000 or $500,000. This is an insufficient limit when using a vehicle for business purposes.
- Although the personal auto policy will never provide protection for tools or equipment, this coverage can easily be endorsed onto the commercial auto policy by using an inland marine rider. Having your tools and equipment stolen from your vehicle while parked at the job site can easily put a major dent in your company’s resources.
The differences between personal auto insurance and commercial insurance are there because the risk is different from individuals, families and businesses.
Liability Limits
A commercial auto policy contains much higher liability limits that are necessary because of the higher asset value of a company versus a household. Where a personal auto policy’s highest limit is $250,000, the commercial auto policy offers limits as high as $4 million dollars and can be extended even higher by using a commercial umbrella policy.
Types of Vehicles
The personal auto policy insures only personal passenger vehicles with a limit of about 10,000 pounds, whereas the commercial policy will insure any type of vehicle from passenger autos to super heavy dump trucks and tractor-trailers. Many commercial policies will also insure mobile equipment used in heavy construction projects. Whether your contracting business uses pickup trucks, vans, or heavy-duty box trucks, you will be able to keep all your vehicles and equipment under one commercial policy.
Number of Vehicles
Most personal auto policies limit the number of insured vehicles to four passenger vehicles, although an individual or family can have multiple policies if needed. The commercial policy does not limit the number of vehicles to be insured or the number of drivers on the policy. This makes keeping all vehicles and equipment under one policy much easier to deal with.
Additional Equipment
Only on a commercial auto policy will you be able to add coverage for additional equipment such as specialty trailer hitches, lift gates, high-reach buckets, and specialty toolboxes. This type of equipment is easily damaged in an accident so why take the chance with a personal auto policy that will offer no coverage at all.
Fairbanks Insurance Brokers is a leading source for contractor’s insurance services.
Here is What We Recommend:
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursem*nt for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
Get A Quote
For more information and a free commercial insurance quote, contact an insuranceprofessional at Fairbanks Insurance Brokers at(949) 595-0284.
FAQs
It's a fact that most personal auto policies do not provide coverage for business-related accidents and incidents. So, if something goes awry while you or an employee is driving for business-related reasons, you'll have to pay out-of-pocket for any legal, repair, and car rental costs.
Can you use a personal vehicle for business? ›
If an employee uses their personal vehicle for business, The employer typically reimburses the employee for the business mileage incurred at the standard mileage rate. The amount received for documented business miles is not taxable to the employee and vehicle expenses are deductible by the employer.
What is the difference between personal and business car insurance? ›
Commercial auto insurance typically provides for higher policy limits than personal auto. The point here is to safeguard your business assets from lawsuits and other liabilities.
Does using a car for business increase insurance? ›
Because business car insurance policies have different coverage than individual policies, they are often more expensive. This is because you're driving for longer and more frequently on unfamiliar roads, which increases risk factors.
Is your personal auto policy endorsed to allow for business use? ›
Simply put, a personal auto policy is not designed to cover the employee using their personal auto for business purposes. For this exposure to be covered under the employee's personal auto policy, the employee typically would need to add an endorsem*nt that covers the use of a personal vehicle for business purposes.
Can I use my personal vehicle for my LLC? ›
Yes. However, using a car for business and personal reasons may reduce your overall tax deductions. For example, you won't be able to deduct any mileage acquired through personal use of the vehicle. So, you'll need to keep track of business mileage vs.
What are the benefits of putting a car in your business name? ›
The main advantage is that you separate your personal and business assets when buying a car as a company. For example, you protect yourself from being sued if your vehicle gets into an accident. Optimizing maintenance costs is the primary goal of any limited liability company.
Is it better to finance a car through business or personal? ›
If you plan to use the car solely for your business, you'll get the most tax benefits by purchasing the car through your company. Companies are allowed to deduct general car expenses such as repairs, gas, oil changes and tires.
What is the difference between personal and professional liability insurance? ›
Personal liability insurance covers damages or injuries to others on your personal property. Professional liability insurance covers you if claims are filed against you for professional negligence, errors, omissions, or other issues that can arise if you provide professional services for a living.
Why is commercial auto insurance important? ›
Commercial auto insurance can reimburse policyholders for the costs of vehicle repairs they may need following a crash, regardless of who is at fault. Many policies even provide coverage for uninsured and underinsured motorists, providing an extra layer of protection. Medical payment and lawsuit coverage.
If you're a business owner, or self-employed, you can deduct your business-related car expenses using a Schedule C (Form 1040) Profit or Loss from Business. If you're a farmer, you can use a Schedule F (Form 1040) Profit or Loss from Farming to deduct your farming-related vehicle expenses.
Can you write off insurance premiums on your taxes? ›
If you paid the premiums for a policy you obtained yourself, your health insurance premium is deductible when they are out-of-pocket costs. If your insurance is through your employer, you can only deduct these: Amounts you paid with after-tax funds.
Can you write off a car on taxes? ›
Unless you're using your car exclusively for your business, you can't deduct the full cost of purchasing, maintaining, and repairing it. You can and should, however, deduct what you can. The key, as with almost any issue to do with the IRS, is having clear records to support your claims.
What is excluded in a personal auto policy? ›
Injury to an employee: If you have an employee who is injured while working, losses should be covered under worker's compensation and not your personal auto insurance policy. Vehicle being used as a residence: An insurance company can deny coverage on a claim relating to any vehicle being used as a residence.
What is excluded in a business auto policy? ›
Intentional damage, damage from pollutants, and injuries covered by workers' compensation are just a few of the notable exceptions to most Commercial Auto Liability Insurance plans.
Who is covered under a personal auto policy? ›
Under liability coverage, the following people are protected: The named insured or family member (child, spouse). Anyone who is allowed to drive the insured's covered vehicle. Anyone driving for an organization to which the insured lends their covered vehicle (the organization is also protected).
Should you convert your personal vehicle to business use? ›
Converting a personal vehicle to business use can provide several financial benefits. These include the ability to deduct vehicle expenses such as fuel, maintenance, insurance, and depreciation on your business tax return.
What is the IRS rule for personal use of a company vehicle? ›
Under IRS general rules, all use of a company car is considered personal use unless the employee documents the business use of the car. Personal use of a company vehicle generally results in taxable wages for the employee.
Can I write off the purchase of a vehicle for my business? ›
Section 179 allows business owners or those who are self-employed, to “write off”—or take a tax deduction—for part of the cost of your vehicle the first year you start using your vehicle for your business. Section 179 covers many types of property as a deductible expense for business, but not all vehicles qualify.
What vehicles qualify for business tax deduction? ›
What vehicles qualify for the Section 179 deduction?
- Heavy SUVs, pickups, and vans over 6000 lbs. and mainly used for business can get a partial deduction and bonus depreciation.
- Typical work vehicles without personal use qualify.
- Cargo vans and box trucks with no passenger seating can qualify.
