As someone involved with equipment financing, I’ve been around deals for all manner of business vehicles, particularly for construction companies.
In fact, for construction companies, there are both “obvious” business vehicles, such as dump trucks and heavy equipment, and there are partial use business vehicles, like pickups, vans, and even SUV’s. These partial use vehicles can do double duty – they might be at the construction site, and after hours, they might be picking up the kids at the ballgame.
And since we handle the financing, it’s inevitable that we’re asked about insurance. And the truth is insuring a business vehicle is not always as straightforward as it first appears. From coverage limits, circumstances, and pricing to questions like “How do I insure my partial use business vehicle?” there can be several notable differences from personal vehicle insurance.
This article will review some of the main factors in insuring a business vehicle and clarify a few of the more misunderstood aspects, especially in partial-business use vehicles. However, you should always consult an insurance professional in any insurance-related matter. Please also note the information presented could vary by state and local laws as well as the individual insurance company used, and is meant to be a guideline only. Again, always consult your insurance professional for your specific coverage details and needs.
Insuring a Business Vehicle vs. Insuring a Personal Vehicle:
There are several key differences between insuring a business vehicle and your personal vehicle. These include:
Coverage Limits: The coverage limits for business vehicles generally need to be higher than for personal vehicles. This typically includes all facets of a policy: property damage, vehicle damage, liability, comprehensive coverage, and more. This is for several reasons: business vehicles usually cost more, have more drivers, businesses are more likely to be sued, and larger business vehicles can cause more damage in an accident. Businesses need to protect themselves and their assets, and the higher limits of commercial policies offer more complete protection. Your insurance professional should be able to recommend adequate coverage limits.
Coverage Types: Many business vehicle policies will have business-specific riders to cover cargo, additional passengers, employees driving the vehicle, and more.
Specific Non-Vehicle Coverages: What happens if you send an employee on an errand, they use their personal vehicle, but get into an accident? You still need to protect your company from liability (after all, it was your employee getting into an accident on company time, so your company will always be at least partially responsible.) This is where “hired and non-owned” policy riders on commercial vehicle insurance come in.
Another aspect is companies that use business vehicles as rolling offices/showrooms or experiential marketing vehicles with customers in and around the vehicle. These situations need to be included in the policy.
Insuring a Partial Business Use Vehicle
Many small business owners have a personal vehicle they use for business purposes a certain percentage of the time, and the question of how to insure it often arises.
For example, a construction business owner buys a heavy SUV or pickup truck for partial business use. It’s driven to and from the office and jobsites, and during the day it is used in the business – maybe going to see clients and price jobs, pick up supplies, make deliveries, tow something, etc. In other words, the vehicle is used for whatever business activities require a vehicle. The business owner even took a partial Section 179 deduction on it.
But the same SUV / pickup is also used for personal errands, the family uses it to drive to the beach for vacation, to pick up the kids from their friend’s house, and all the other normal activities we use our personal vehicles for.
So it’s very much both a business and personal vehicle. But how should it be insured? With a personal or commercial policy?
There is no official answer, but in most cases it should be registered and insured under the business name as a business vehicle (please note that if the vehicle was financed under the company name, this will likely be a non-negotiable loan requirement).
The reason for using a commercial policy on a partial-use business vehicle is simple: commercial insurance policies for business vehicles offer better coverage (and better protection) for more situations. If you insure the vehicle under your personal policy, and then get into an accident during the “business use” part, you bring an unknown variable into the equation. Did you tell your insurance company it was being used partially for business? If not, they could balk at paying out a claim that happened during business use.
Or imagine you allow an employee to drive the vehicle to deliver or pick up something across town. The employee gets into an accident and someone is hurt. If the vehicle is insured as a personal vehicle, the insurer may look to avoid paying any claims – after all, they insured the vehicle for personal use, not business. To their eyes, it didn’t belong out there on a business task, being driven by an employee. Plus, if your business gets named in a corresponding suit, the insurance company may completely wash its hands of it. That could be costly.
Please note that this is not a treatise on how insurance works or whether a company will pay out or not – it’s simply an overview of what could happen in a worst-case scenario. Especially here in 2024, when the insurance industry has been continually adjusting what they pay out for.
For Business Vehicle Insurance, a Commercial Policy Makes the Most Sense
The bottom line is there are too many variables and possible risks to consider anything less than a commercial insurance policy for even a partial-use business vehicle.
Businesses are sued every day for a myriad of reasons. Your business is too valuable to leave exposed by either not having all of the proper/necessary riders, and your personal life is not something you should risk by having a personal insurance policy covering even a partial-use business vehicle.
For any vehicle used in business, ensure your insurance agent is aware of all possible business use factors and circumstances – do not leave anything out. If there’s even a chance an employee may need to drive the vehicle or a client might be riding in it, the insurance company needs to know this, regardless of policy cost – the alternative is simply too risky.
One more time before I go; you should always consult your insurance professional for the best coverages and amounts for your specific situation.
Insurance should never be looked at as a pure expense – it is a necessary protection for both your business and personal life. And properly insuring a business vehicle with a commercial policy - even a partial use business vehicle - makes the most sense.
