Canadians love their cars. Many of us use our personal car to commute to work, but some of us also drive around town as part of the day-to-day duties of our job. When it comes to using your car for business reasons, it’s a good idea to make sure you have the right type of car insurance. Can a private car be used for business purposes? This article will clarify the difference between personal vs. business car insurance when it comes to your policy coverage.
Personal use car insurance
A personal auto policy is insurance on your personal vehicle. It may include liability, medical payment coverage, comprehensive, or collision coverage, depending on your policy. This auto policy is insurance on your personal use vehicle.
Standard auto insurance policies typically include:
- Third-Party Liability: Provides compensation for drivers if they’re at-fault in an accident and the other party is hurt or killed. It also covers damages to the other person’s property and related repair costs.
- Accident Benefits: Includes coverage for injuries sustained in a collision. This includes medical care, rehabilitation and income replacement for drivers, passengers and pedestrians involved in the accident.
- Uninsured Automobile Coverage: Offers coverage for injuries and damages sustained through the fault of a driver who is uninsured or unable to be identified (in the case of hit-and-runs).
- Direct Compensation Property Damage (DCPD): In provinces with no-fault insurance, DCPD means you will deal with your own insurer for car repairs and other damaged property. If you’re not at-fault for an accident in a province without DCPD, you will have to seek property damage compensation from the other party’s insurance company.
Personal vs. Business Car Insurance
For small businesses, the line between what is considered a personal vehicle and a commercial vehicle can be blurry. Sometimes small business owners and employees use their personal vehicles for business purposes. For example, they might use their own car to travel to job sites, transport equipment, or deliver goods. Personal use of your vehicle refers to the typical driving that most people do every day – like driving your children to school and your daily commute to work. Similarly, trips to the movie theatre, grocery store, and the gym would all fall under personal use.
Business use is whenever you use your vehicle as part of your job. Some common examples include real estate agents that need to travel to meet clients for showings. Or, a social worker that may need to visit several addresses in a day to meet with both individuals and agencies. If you use your vehicle for business purposes, you may need to add business use on your personal auto insurance policy. Alternatively, you may need to purchase a separate commercial automobile insurance policy. Why? Because if you get into an accident while ‘on the job’, you may not have sufficient coverage.
The main difference between personal and business car insurance is who owns the vehicle. If your business owns the vehicle, it must be covered by commercial auto insurance.
Business use not included in standard personal use auto policies
According to Economical.com, your insurance company may also exclude certain types of business use from personal car insurance policies. If you use your vehicle for any of the following types of services, you may need to update to business use coverage or purchase a commercial policy:
- Carrying passengers for hire: Including ride-sharing programs, like Uber or Lyft.
- Delivering food or products for a business: Making deliveries that are part of a business (e.g., delivering goods, like pizza, flowers, rental equipment or merchandise, or delivering any materials as part of services provided by a business).
- Emergency transportation: Like using your truck to tow others.
- Renting out your vehicle to others: Most personal insurers won’t allow you to rent out your personal vehicle for pay.
Lend (but don’t rent) your car out often? Have a look at our article about the ins and outs of who can drive your car under your insurance.
Considering ride-sharing as a possible side-hustle? It’s important to note that transporting paying passengers is not covered under your personal car insurance. Carrying passengers for money and making deliveries for services, like Uber and UberEats, is rarely covered under a standard auto policy. As you will be driving a lot more, there’s a much higher chance of getting into an accident and filing a claim. It’s always a good idea to speak with your isure representative to make sure you’re covered for ride-share services. You may need to purchase add-on coverage to ensure you’re adequately covered.
Commercial insurance policy
If you are using your personal vehicle for frequent business-related errands, you shouldn’t assume that your personal insurance policy will cover you in an emergency, like an accident. Commercial auto insurance covers cars, as well as trucks, pickups, and vans, being used for work purposes. It protects your vehicle and business from exposure to threats. This is referred to as IRCA or Individually Rated Commercial Auto insurance.
Essentially, there are three main criteria to consider to help you determine if you need personal vs. business car insurance coverage:
- Use of the vehicle: If visiting clients on a daily basis is the core of your services or if you make deliveries, you should have a commercial auto insurance policy.
- Type of vehicle you drive: Large commercial vehicles often cause more damage in an accident, and your coverage will likely reflect that.
- Vehicle owner: If you drive a vehicle that is owned by your business for business purposes, you should have commercial auto insurance coverage. Any employees who utilize the vehicle will also need to be covered under your policy.
There are a few services that need a commercial auto insurance policy, such as:
- Contractors and construction
- Maintenance people (if they are carrying tools)
- Personal emergency equipment (i.e. tow truck)
- Any delivery service (restaurant, take-out delivery)
- Providing driver education
- Sales visits and calls
- Employee use, even if you only use it occasionally
- Taxi-style hire services (i.e. Lyft or Uber)
Personal insurance will not cover you when driving for business use and commercial will not cover personal use driving.
Do you need a company car?
Own a small business? Consider using your personal vehicle for business instead of purchasing a company car. If you use your personal vehicle under a commercial auto insurance policy, you may be able to deduct certain expenses at tax time, such as:
- License and registration fees
- Gas costs
- Car insurance
- Interest on money borrowed to finance a vehicle
- Maintenance and repairs
- Leasing costs
- Parking fees
Motor vehicle expenses
According to the Canada Revenue Agency (CRA), you will need to see proof of business usage. If you regularly use your vehicle for business and personal trips, you can claim part of the total operating expenses for your vehicle as a business expense. You must keep accurate records that show the part of the total kilometres that you drive for your business.
Track your business-related vehicle activities in a book or spreadsheet in order to be able to explain your deductions. Your records should include:
- The dates the vehicle is used for business.
- The destination, along with a screenshot of the travel time and distance (screenshot of Google maps may be helpful).
- Purpose of the trip.
- Exact mileage of the trip.
Keep all receipts for items, such fuel, supplies and insurance, in order to claim them as business expenses.
Three types of commercial auto insurance
- Business use: This is common for a small business or home-based business. If you’re using your car to drive to various locations and meet with clients, you can add “business use” to your personal insurance.
- Business use & multiple drivers: Allows the option to add multiple drivers when multiple employees use your vehicle, and the insurance is through the owner.
- Commercial auto use only: If you have vehicles that you use daily only for work purposes or if you have equipment and other features (snowplow or tool rack).
Claims while driving for business
If you are using your personal vehicle for business purposes and a collision occurs, your claim will likely not process if you didn’t disclose the usage of your private car to your insurance company. This denial means you will have to handle the consequences independently. There is also a possibility of policy cancellation altogether and to begin driving again, you will need another policy. However, if your business use covers your daily commute to work, you have coverage.
When it comes to personal vs. business car insurance, remember this. The rule of thumb is that if any aspect of your job requires you to drive on a regular basis, you’ll need commercial auto insurance. This does not include your daily commute, which is covered by your personal policy. At isure, we are here to help if anything happens to you. If you have any questions, please do not hesitate to contact us.