Commercial Vs. Personal Auto Insurance


A commercial vehicle is one that is used primarily for business. The keyword in the definition is "primarily," because the same vehicle may be used for both personal and commercial purposes. It is important to properly differentiate a personal vehicle from a commercial one for two reasons: first, you are required by law to carry commercial vehicle insurance for all commercial vehicles; and second, commercial vehicle insurance is considerably more expensive than insurance for personal vehicles.

Primary Use

  • If you use the same vehicle to drop your children to school and run business errands, the vehicle is classified as either a commercial or personal vehicle based on its primary use. For example, if you own a car that your business uses to occasionally transport goods or employees, but is primarily used by members of your household, the car is classified as a personal vehicle. On the other hand, vans used by a business to deliver goods to customers and transport employees are classified as commercial vehicles.

Primary Drivers and Vehicle Type

  • Apart from primary use, you can distinguish between a commercial vehicle and a personal vehicle based on the vehicle's type and primary drivers. If a vehicle is primarily driven by you or members of your household, a personal auto policy may be adequate. However, if the vehicle is mostly driven by your employees or co-workers, you will need a commercial auto policy. Additionally, some types of vehicles, such as cement mixers, refrigerated trucks, flatbed trucks, cargo vans, passenger busses and tow trucks, must always be covered with a commercial policy.


  • Personal auto policies are not adequate for commercial vehicles because insurers sell coverage based on the risk associated with the vehicle, and they consider commercial vehicles riskier than personal vehicles. When determining the amount of premium to charge a customer, insurers take into account the risk that the vehicle will be involved in an accident. The insurer uses the vehicle's risk level to assign a premium amount that is commensurate with the risk of covering the vehicle. From the insurer's perspective, a commercial vehicle is deemed to carry higher risk, mainly because of how it is operated. Additionally, a commercial vehicle is typically driven more miles than a personal vehicle over the same period, which accelerates its wear and tear, increasing the likelihood that the vehicle will be involved in an accident. Understandably, insuring a commercial vehicle with a personal policy would go against the "higher risk, higher premium" rule.

Cost Factors

  • Because coverage for commercial vehicles is more expensive, you should not purchase a commercial policy for a vehicle that can legally be insured with a personal policy. Commercial auto insurance rates depend on a number of factors, and you should compare quotes from several insurers before buying coverage. Most insurers look at several factors including the type, condition, make and model of the vehicle; the license type, age and driving history of all drivers; the type and quantity of cargo; number of passengers; and estimated annual mileage. An insurer may offer discounts if the owner also purchases other forms of insurance from the same company.

Minimum Coverage

  • All states require that owners insure their vehicles, whether commercial or personal. In most states, the minimum required insurance for commercial and personal vehicles is liability coverage. This insurance protects the owner from having to pay compensation in case of an accident caused by the policyholder or another driver operating the policyholder's vehicle. Liability coverage contains bodily injury coverage and property damage coverage, and is used to compensate the other party. If your truck causes property damage totaling $3,000 and injuries that result in $2,000 of medical bills, the liability coverage portion of your auto policy pays for these damages.

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