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When do I need business auto insurance?

Things to Remember

  • Personal auto insurance is designed to protect vehicle owners who are driving their personal vehicles
  • While a traditional auto policy will provide protection if you’re commuting to and from work, there are exclusions written into the policy that all policyholders should be aware of
  • If your vehicle is used solely for business, you’ll have a need for specialized commercial auto insurance coverage
  • In addition to business use, there are exclusions written into policies for drivers who are involved in delivery or in the transport of people for a fee
  • If your vehicle is registered to or owned by your business, it’s important that you carry business auto insurance
  • It’s important that you review the auto insurance requirements and the exclusions so that you can avoid having a loss where your claim is denied

When do I need business auto insurance? You may need business auto insurance because personal auto insurance isn’t the type of financial product that’s designed to cover business vehicles.

Unfortunately, the definition that you use to define the business use and the definition that the insurance company uses can be dramatically different.

You may need to compare business auto insurance rates and then buy a business car insurance policy that meets your needs. You can do so by reading our article What do standard auto insurance companies offer?

Read on and find out if your freelancing job or that side job that you took delivering food has changed your needs for auto insurance.

Type your ZIP code into our free and helpful tool above to find affordable business auto insurance quotes that will protect your car and your bottom line.

Table of Contents

What is business and commute usage under personal auto insurance?

One of the things that makes it difficult to understand what personal auto insurance covers and what it doesn’t is the usage classification.

There’s a long list of risk determinants that insurance companies use to calculate premiums and vehicle usage is one of these.

It’s believed that how a vehicle is used can have an effect on how likely a household is to have a loss.

What can be confusing is that there are three different types of usage classes that can be used on a policy and each has a different bearing on rates.

Here’s a breakdown of what each use means:

  • Pleasure Usage – Class used to rate vehicles that are driven strictly for recreational reasons or to run errands around town. This is the least expensive class and is for vehicles that are solely used for personal reasons.
  • Commute – Commute class is assigned to vehicles that are regularly driven to and from work or school. In order for a driver to qualify for a commuter classification, they must go to one work site and not to several sites throughout the day.
  • Business  A Business class on a personal auto policy can be a bit confusing. Rather than driving to and from a single work site, a business user might drive to several job sites in their personal vehicle to visit their clients or to different offices.

While some types of business use are permitted in private passenger vehicles, there are very specific exclusions that make it so that not all business use is permitted.

What if my vehicle is owned by my business?

One of the biggest requirements is that you must be the registered owner and the title holder of a vehicle to insure the automobile under your name.

If the automobile is either owned or registered to a business entity, you’ll automatically need business auto insurance on the vehicle.

This is because of the way that insurable interest works.

Since the automobile is registered to the business, it’s the business that is obligated to buy coverage and the business that is at risk of being sued for a loss.

It’s also the business that would be at a financial loss if something were to happen to the automobile. Combine all of this information together, and you can see why any vehicle registered to a business entity will need to buy commercial insurance.

What you would typically be best off buying would be full coverage. Let’s take a look at a table showing the average rates for full coverage in each state.

Average Annual Full Coverage Auto Insurance Rates by State
States2015 Average Annual Rates2014 Average Annual Rates2013 Average Annual Rates2012 Average Annual Rates2011 Average Annual Rates
South Dakota$766.91$744.28$717.30$690.95$669.20
North Dakota$773.30$768.09$743.27$714.75$688.74
North Carolina$789.09$768.28$739.91$720.47$708.10
New Hampshire$818.75$795.50$773.30$755.76$746.57
New Mexico$937.59$920.42$888.83$866.19$869.85
South Carolina$973.10$936.69$904.22$880.82$857.70
West Virginia$1,025.78$1,032.45$1,021.37$1,005.68$992.57
Rhode Island$1,303.50$1,257.40$1,210.55$1,176.05$1,148.97
District of Columbia$1,330.73$1,324.39$1,316.48$1,289.49$1,276.99
New York$1,360.66$1,327.82$1,301.49$1,273.70$1,236.77
New Jersey$1,382.79$1,379.20$1,369.70$1,334.59$1,303.52
U.S. Average$1,009.38$981.77$950.92$924.45$908.43
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What types of vehicles are excluded from a personal auto policy?

You must be covering a private passenger vehicle for your personal auto insurance to provide coverage. This means that compacts, coupes, sedans, wagons, and minivans that are used for appropriate types of business can be covered under a personal policy.

Some policy forms, however, won’t extend business use coverage to a pickup truck or a van that’s used for any type of professional purposes.

According to the Insurance Information Institute, other types of vehicles that must be covered under a business insurance policy include:

  • Vehicles equipped with special equipment
  • Vehicles with altered suspension lifts or racing equipment
  • Vehicles with permanent toolboxes or ladder racks used for business
  • Utility vehicles, trucks or vans that exceed a Gross Vehicle Weight of 10,000 pounds
  • Vehicles with a rated load capacity of 2,000 pounds or more

What types of business use are specifically excluded from my insurance?

Now that you know what types of automobiles are excluded, it’s time to learn what types of business uses are excluded under the policy.

Here are some of the usage types that would automatically make you ineligible for personal insurance even if you drive your automobile for both business and pleasure:

  • The vehicle is used for the delivery of goods and supplies
  • The vehicle is used to transport people as a taxi service
  • The vehicle is used in public livery or conveyance
  • The vehicle is driven by employees on an occasional basis
  • The vehicle is rented or leased to others

How does commercial auto insurance differ from personal auto insurance?

You might wonder what the difference is between commercial and personal insurance and the answer is in what types of coverage is offered.

Let’s take a look at a quick video outlining the differences between the two forms of coverage before we dive in for more detail.

You’ll get commercial liability coverage, protection geared towards insuring employees while they’re driving a business vehicle, and the option to buy a combined single limit policy which can provide you with millions of dollars in protection.

There’s a major difference between liabilities and risk, so you may think you don’t need a business auto policy, but assuming you don’t need one can lead to serious consequences.

Ask your agent if you’re covered to drive your vehicle for business in your situation. If you’re not, start using a rating comparison tool online and you can easily see how much commercial insurance will run you.

Once you compare the instant quotes, make a selection and bind coverage.

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When would I need business insurance for my automobile?

Personal auto insurance will cover you to drive to and from work but is limited in how much protection is afforded when you’re driving for business.

While many standard policies will cover business users, there are specific limitations written into the policy that you’ll need to know about before you assume your coverage is adequate or appropriate.

  • If you’re a professional who drives their personal automobile for business use, you may be able to purchase personal insurance for all of your usage needs
  • Personal auto insurance excludes some business use and doesn’t afford cover if the vehicle is owned by the business
  • A Business Auto Coverage Form is used to provide business auto liability insurance to business owners who have fleets or who allow employees to drive company automobiles
  • Business auto insurance provides broader coverage options to a wider range of vehicles
  • Business auto insurance doesn’t cover personal usage unless you have a special Drive Other Automobiles Endorsement to broaden the coverage

Start comparing business auto insurance rates now by using our FREE quote tool above. While not all business professionals need business insurance, there are many scenarios where a business auto policy is the only type that’ll provide protection.

Read on and find out more about the difference between personal and business policies before you start to build an insurance portfolio.

What does personal auto insurance cover?

Personal auto insurance is designed to provide coverage for social and domestic use.

While the average person does use their vehicle to commute to and from work or even to travel between work locations, you can’t expect your standard auto insurance to pay when the vehicle you’re driving is used solely for business.

This is because vehicles used in business face unique risks and these risks aren’t used to determine premiums under a standard policy.

Read our article What do standard auto insurance companies offer to learn more. 

What is the difference between commuter and business users?

While no personal auto insurance plan will afford coverage for an automobile used primarily for business, it’s possible that business use in your personal vehicle will be covered.

To determine whether or not this is true, you’ll need to review the terms, conditions, and exclusions that make up the policy.

As a policy is being underwritten, the agent will ask exactly how the vehicle is being used on a regular basis.

You can select from either pleasure, commute, or business use. While commute and business use sound the same, they are actually very different.

Commuters drive to and from a main work location and business users will drive from one job to another or from one client to another throughout the course of a day or week.

How insurers classify business use is very similar to how business use is defined by the IRS.

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Selecting Business Use Under a Personal Policy

If you use your automobile for private and business use and it’s registered under your name, it’s possible that you could be fine carrying strictly a personal auto policy.

For your insurer to pay, you must notify the insurer that you’re driving for business so that you can be charged the right rates for the risk that you’re presenting.

This is because usage is a major factor used to determine auto insurance rates.

While business use is the highest risk class and comes with the highest sticker price, it’s a class that gives you the option to buy standard insurance without needing a business policy.

If you’re changing your policy from pleasure or commute usage to business usage, you will notice a jump in your rates. This rate difference varies from carrier to carrier, but it’s much less than what you would pay for a commercial policy.

Types of Business Usage Excluded From a Personal Policy

In some scenarios, you have no choice but to buy a business policy even when you own your vehicle and when you drive for both business and personal use. This is because there are types of use that are listed in the named exclusions portion of a policy.

Some of the various business exclusions written into a personal policy include:

  • Vehicles used for pickup and delivery of goods
  • Vehicles used for messenger services
  • Vehicles used in any type of taxi or livery service
  • Vehicles owned or leased by a corporation
  • Vehicles that are rented or leased to others
  • Vehicles registered and titled to a business
  • Vehicles driven by employees and non-listed drivers regularly
  • Vehicles with a Gross Vehicle Weight of more than 10,000 pounds
  • Vehicles equipped with special cooking, catering, plowing, racing or other equipment
  • Vehicles with permanently fixed toolboxes and ladders for business use

What is a Business Auto Coverage Form (BACF)?

Auto policies come in several forms. If one doesn’t cover you, there’s another form that will fill in the gaps.

A Business Auto Coverage Form is a commercial policy that is designed to provide business liability coverage to autos owned by a business or used in conjunction with a business.

Autos don’t just include private passenger automobiles. The term also includes:

  • Trucks
  • Vans
  • Trailers
  • Other vehicles driven on public roadways

Who needs a BACF policy?

While not everyone needs business coverage, if you carry the wrong insurance, you could face claims denial. It’s also important that you know personal auto insurance only protects claims made against you and your personal assets.

If an injured policy files a claim against your business, personal insurance won’t pay. Here are some examples of situations that create a need for a Business Auto Coverage Form:

  • Automobile is leased or financed to your business
  • Automobile is registered under the name of the corporation
  • Vehicle has permanent fixed industrial equipment
  • Vehicle is only used for business
  • Vehicle is used on the interstate for business
  • Employees drive the vehicle on a regular basis
  • Automobile is used for deliveries or for livery services

Read on to learn more about using your business vehicle for personal use.

How to Cover Business Vehicles Being Driven for Personal Use

Your personal auto insurance might cover some business usage, but a business policy won’t cover any personal usage unless you have a specific endorsement.

If your business vehicle is your personal vehicle, be sure to add the Drive Other Automobile Coverage Endorsement so that you’re covered across the board.

If you’ve been carrying the wrong type of insurance for your vehicle, now’s the time to correct the error. Start to price the cost of either personal or commercial auto insurance and then select the best policy based on price and reputation.

If you want to price the cost quickly, use a price shopping tool online for instant quotes and you can conveniently shop the market for coverage.

If you are ready to buy business auto insurance, start comparing small business auto insurance rates now by entering your ZIP code in our FREE quote tool below.


  1. http://www.iii.org/publications/insuring-your-business-small-business-owners-guide-to-insurance/specific-coverages/business-vehicle-insurance

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