One of the most common questions we get at the office is, “Can I keep the current personal auto policy I currently have even though I’m now using the car for business?” Very few questions in the insurance industry are absolute, black and white, cut and dry. This question is no exception. In this article, we’ll touch on some major points to consider when making the decision about using a personal auto policy (PAP) or a business auto policy (BAP).
As a general rule of thumb, the PAP provides broader coverage. That’s good news for everyone with a personal auto policy. However, the PAP has exclusions in place when a vehicle is used for business purposes. The first area of concern is how the vehicle is titled or owned. If the vehicle is owned in the name of a business, a PAP is the wrong policy. With just about anything in the insurance world, there are ways to endorse a policy for specific needs, but the legal name on the vehicle title is a big indicator of what type of policy you should have. If the vehicle is owned in the name of a LLC or corporation, your best bet is probably a BAP.
Now, what if the legal owner is a person, not an organization, and the vehicle is used for business? An endorsement for business use is available from most personal insurance companies. That endorsement is geared towards folks who are in their cars a lot more than the average commuter. This endorsement is not necessarily for a contractor’s van with business property inside or a heavy duty pickup towing cars on I-5 but for more for real estate agents, insurance agents, accountants and other professionals. Be careful: The PAP is not intended for employees. Even though you may be able to add the business endorsement, a PAP may not have the liability limits you need.
Most PAPs limit liability to $500,000. Even though that limit is available, a more common liability limit on a PAP is $100,000 or $250,000. The average BAP liability limit is $1 million. As you can see, the $1 million BAP has significantly greater limits. Keeping higher limits, like $1 million, may prove to be beneficial when needed. In our litigious environment, if someone learns you’re a business owner, do they think you have deeper pockets? If you have a PAP, its lower liability limit may be insufficient to protect your business from risk.
The last item we’ll discuss is what happens in the event of a claim. You pay insurance for the promise that a company will be there to put the pieces back together. If you have an accident while using the vehicle for a business activity, running to the bank, on your way to meet a client, etc., will the unendorsed PAP provide coverage? It may, and, it may not.
The PAP has specific wording excluding business activities from coverage. Would a company deny a claim if you were delivering flowers or pizzas? Probably. Would the same company deny coverage if you ran to the bank to make a deposit for the business? I don’t know. But I do know that if you have not consulted an independent insurance agent, you’re leaving a huge decision up to the insurance company and I don’t know if that’s a game worth playing.
For other questions about your business insurance, contact Paul Pukis at Mosaic Insurance Alliance at 425-320-4280 or SuperAgent@MosaicIA.com.
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