Along with the many other steps to take when starting a business, here's one that many self-employed folks neglect: checking to make sure they have the right car insurance coverage.
Just because your business is part-time or operated out of a home office on a shoestring budget doesn't mean a personal auto insurance policy is enough. There are different types of car insurance that you should know about to be sure you have sufficient coverage.
Here are five coverage tips to make sure you have the protection you need:
1. Don't lie to the car insurance company.
A personal car insurance policy typically excludes coverage for some types of business use, other than commuting to an office, so you need to check the policy and let your insurer know how you're using the vehicle.
"Otherwise the insurance company could deny a claim and then cancel your policy if you rely strictly on a personal auto insurance policy and use your vehicle for business purposes," says Insure.com consumer analyst Penny Gusner.
That goes for part-time businesses, too, says James Kuryak, principal of Niagara National Insurance in Buffalo, N.Y.
In his region, for instance, a lot of folks make extra money in the winter by attaching plows to their pickups to clear private roads. Generally vehicles with equipment attached to them require commercial insurance.
2. Determine whether a business-use endorsement on your personal policy is necessary and would provide enough coverage.
A business-use endorsement is an addition to a personal car insurance policy. It's geared toward professionals such as real estate agents, lawyers or consultants who drive frequently for business, but aren't using a car in ways that a personal policy would exclude. Adding the endorsement boosts the premium, but a personal policy with a business use endorsement is still usually less expensive than a commercial car insurance policy.
"A business-use endorsement is just so you and the carrier understand each other that this vehicle is used for business purposes," Kuryak says.
In some instances you may not need additional coverage. Say, for instance, you're a self-employed writer and drive occasionally to your literary agent's office. In that case a personal policy likely would suffice, and a business-use endorsement would not be necessary, Kuryak says.
But if you drive frequently for business, the insurer may require the endorsement or have you upgrade to a commercial policy.
The choice will vary according to your circumstances and the insurer. A business-use endorsement on a personal policy may be sufficient if you're a sole proprietor, use only one vehicle for the business and you can purchase high enough coverage limits to protect you and the business, Gusner says.
3. Understand when a commercial policy is a must.
Some vehicles and uses are disqualified for personal auto insurance, and you have to buy a commercial car insurance policy to have coverage.
"You're not going to get a dump truck on a personal policy," Kuryak says.
You might even have a hard time getting a pickup or van used for business on a personal policy.
Say, for instance, a self-employed handyman uses one vehicle, with no equipment attached, to drive to homes to bid on projects.
"If he is using a car, a personal policy may be all he needs," Kuryak says.
But if he's using a pickup or van, the insurance carrier might require a business-use endorsement or might not issue a personal policy on the vehicle based on the customer's occupation as a self-employed contractor. The insurer will assume the vehicle is used heavily for business purposes.
"Also, will the contractor have signage or a wrap on the vehicle advertising his service? That just screams business use," Kuryak says. "To be safe, the contractor should indicate business use to their personal lines carrier and see if they will accept the risk. If so, all is good. If not, then purchasing a business policy would be needed."
The guidelines of whether you need a commercial policy vary by insurer. Esurance, the direct-to-consumer insurer owned by Allstate, says you likely need commercial car insurance if the vehicle is:
- Used to deliver goods or used as a taxi or messenger service.
- Owned or leased by a partnership or corporation.
- Registered or titled to a business, corporation or partnership.
- Driven by employees or non-listed drivers.
- Leased or rented to others.
- A pickup, van or utility vehicle that weighs more than 10,000 pounds or has a rated load capacity of more than 2,000 pounds.
- Equipped with snowplowing or cooking equipment, bathrooms, altered suspensions, hydraulic lifts or racing equipment; or has equipment installed, such as ladder racks or permanent toolboxes used for the business.
4. Determine how much liability and other coverage you need.
Work closely with your agent or insurer to determine how much liability insurance you need. With a personal auto insurance policy, $500,000 is usually the highest liability limit you can buy, without purchasing an additional umbrella policy. A commercial policy offers liability limits in the millions. After all, you have a valuable business to protect if you cause an accident and someone sues you.
Commercial insurance also offers other types of coverage that you can't get with a personal auto insurance policy. Rental reimbursement with downtime coverage for trucks, for instance, helps cover rental fees and other costs when your truck is inoperable after an accident. A single-deductible endorsement lets you pay a single deductible if both your vehicle and attached equipment or trailers are damaged in an accident. Many other options are available. Because businesses are so varied, commercial insurance is more complex than personal auto insurance. Talk to an insurance agent or company representative to determine what you need.
5. Expect to spend more for commercial coverage.
Commercial insurance generally costs more than personal auto insurance because it's designed to cover greater risks and provide more protection.
A variety of factors affect the premium including:
- Where the vehicle is garaged
- Driving record of you and other employees who use the vehicle
- Type of vehicle
- How the vehicle is used
- Deductible - the higher the deductible, the lower the premium.
If it's a close call between a personal policy with a business-use endorsement and a commercial policy, Kuryak says to imagine how you'd feel if you caused a bad accident and had to make a claim. He chose a commercial policy on the vehicle he uses for his independent insurance agency.
"I have it because I'm constantly in my car working," he says. "I sleep easier knowing a claim is going to go through my business policy first."