We are often asked to add personal title vehicles to a company’s commercial vehicle policy. The reasons are many and varied. It is believed that there are tax breaks; they can write off the premium as an expense, commercial premiums are cheaper or they just don’t have a personal auto policy. There are probably more insidious reasons, but we want to keep the discussion positive. The vehicle may be covered by a commercial policy, but you have to worry about things you don’t often think about that could leave you without coverage. For example, what happens if you rent a car on holiday and do not have a personal policy? What happens if you borrow a friend’s car who is uninsured and you don’t have a personal policy?
First, if you insist on adding a personal vehicle to a commercial policy and the insurance company is willing, then you need to ask a few questions. Do you have any other personal vehicles and are you insured on a personal policy? If so, you have solved some of your potential problems. If you do not have a personal policy, you should request/verify that the commercial policy includes “other car cover” for you, your spouse and children. If the commercial auto policy is written for a sole proprietorship, use the “individually named insured endorsement.”
As an aside, if you are an employee and your only vehicle is a company vehicle that you use for work and pleasure, check to see if the company policy provides “other vehicle coverage” for you.
In general, the coverage of a personal policy is broader than that of a commercial policy, it covers the things we think will never happen. Business policies are written to cover commercial risks, personal policies are written for everything else. As an entrepreneur, you should have one. Usually when renting a car you are obliged to rent the car in your name, no personal policy means no coverage. We’ve all driven or borrowed a friend’s car. If you are involved in an accident while driving your friend’s car, whose insurance will pay? Your friend’s car coverage is primary, if they didn’t have coverage or the limits weren’t enough to settle the claim then your personal policy would respond.
What do you want to achieve as an entrepreneur? Financial advantages? I believe that if the vehicle is privately owned and used for business, you may still be able to pay the insurance, gas and maintenance. This is a conversation you should have with your accountant. If the vehicle is used for business, the premium difference between a commercial policy and a personal policy would be minimal. If the vehicle is used personally, it would be cheaper on a personal policy. You could also lose multiple policy discounts on other personal policies, which would offset any observed savings. It is good risk management practice to keep our personal lives separate from our business lives. Would you like your teenage child to influence your ability to purchase commercial insurance or how much they will charge you for that insurance? In Maryland, an insurance company cannot cancel a personal car policy for the actions of a person, spouse, or child who cannot drive.
The potential savings are more imagined than real. The potential downside, very large uninsured losses, is more of a reality.