What is the difference between personal and commercial car insurance?

In an era when plenty of people have a side hustle, the line between what qualifies as work and what doesn’t – particularly when it comes to auto insurance – can be confusing.

If you drive your vehicle to commute to work or school or run errands, all you need is a personal auto insurance policy. However, you'll need a commercial car insurance policy if you use your personal vehicle for business, such as delivering packages or hauling materials to a job site. The same applies if you run a business that owns, rents or leases vehicles expressly for commercial purposes.

Commercial auto insurance costs more than a personal policy but offers higher coverage limits, greater legal protections and coverage for more vehicle types.

Read on to learn the difference between personal and commercial car insurance, if and when personal insurance covers business use, details on hired and non-owned auto insurance, what you can expect to pay for a commercial car insurance policy and more.

Key highlights

• Personal auto insurance applies to non-business activities like commuting or running errands and covers others driving with your consent.
• Commercial auto insurance is designed for business purposes, such as transporting goods or clients, and typically provides higher coverage limits than personal policies do.
• Personal policies may cover driving for a ridesharing service, but that coverage will cost extra.

What is personal car insurance?

Ask most people to define what auto insurance is and they’ll probably describe personal car insurance.

“This type of insurance applies to individuals who use their vehicles for personal activities like commuting, running errands or leisure travel, rather than for business or commercial purposes,” says Dy-anna Kunkel, vice president of account management for Chicago-based Insureon.

A typical personal car insurance policy may include:

• Liability insurance. This applies to at-fault accidents and contains two parts: bodily injury and property damage. Bodily injury liability covers costs associated with injuries and death that occur as a result of you negligence. Property damage liability applies to physical damage that you cause to another person’s car or property, such as a building or fence. Every state except New Hampshire requires vehicle owners to carry a minimum amount of liability insurance.
• Collision insurance. This applies to damage to your vehicle that happens as a result of an at-fault collision with another auto or with a stationary object (such as a guardrail or tree). Collision insurance also protects against damage from rollover accidents and potholes but does not cover mechanical failure or normal wear and tear. This is optional for most drivers but may be required if your vehicle is leased or financed.
• Comprehensive insurance. This protects against theft, vandalism and damage caused by events other than a collision, including fire, flood, falling rocks or trees, hail, theft and vandalism. Comprehensive insurance also is optional for most drivers, unless your vehicle is financed or leased.
• Personal injury protection (PIP). This coverage, required in states with no-fault insurance laws, reimburses you for medical bills related to injuries, lost wages and other related expenses that you sustain in an accident, regardless of who was at fault.
• Uninsured/underinsured motorist coverage. Some states also require this coverage, which applies when an accident is caused by an uninsured motorist or in the event of a hit and run. It also kicks in when another driver lacks sufficient insurance.

What is commercial car insurance?

Commercial car insurance is designed for vehicles that are owned, leased or financed and used for business purposes. This type of policy typically covers employees who have permission to use company vehicles.

“It covers vehicles used to, for example, transport goods, clients or employees. It applies to companies, contractors and businesses where vehicles are essential for operations,” says Jason Bataille, principal and division growth leader for World Insurance Associates LLC in Wall, New Jersey.

Nearly every state requires commercial auto insurance coverage for businesses that have vehicles titled to the company and its employees.

“If you or your employees drive company-owned vehicles, your business likely needs commercial auto insurance coverage,” Kunkel says.

Commercial car insurance policies include the same coverage options as personal auto insurance, including liability, comprehensive and collision coverage. The main difference is that coverage levels are much higher and may offer greater legal protection than a personal policy. Additionally, commercial policies apply to more vehicle types – such as dump trucks or construction vehicles – that an individual wouldn’t buy.

What is the difference between personal and business car insurance?

Personal car insurance and commercial car insurance offer similar types of coverage, but there are key differences.

“These include eligibility criteria, definitions, coverages, exclusions and limits, all defined within the policy document,” says Mark Friedlander, director of corporate communications for the Insurance Information Institute (Triple-I), an industry research and education organization.

Notable distinctions between personal versus commercial car insurance include:

• Ownership. The main difference between personal and commercial auto insurance is who owns the vehicle. If your business owns the vehicle, it must be covered by commercial auto insurance. Personal and commercial auto insurance both cover legal costs, bodily injuries, and property damage resulting from accidents. However, commercial auto policies typically provide higher coverage limits, apply to a wider range of vehicles, and address more complex legal situations.
• Coverage limits. With a personal auto policy, liability coverage limits are expressed as three digits, such as 25/50/25, which translates (in this example) to $25,000 for bodily injury per person, $50,000 for total bodily injury per accident, and $25,000 for property damage per accident. Commercial auto insurance uses a combined single limit (CSL) for liability claims. For small businesses, the most common CSL options are $500,000 and $1,000,000, though other limits are available.
• Premiums. Commercial auto insurance generally costs more than personal auto insurance because it provides higher coverage limits and greater legal protection, and because the risk is greater. The cost of this insurance is influenced by factors such as employee driving histories, the coverage limits of the policy, and the chosen deductible.
• Who is covered. Personal policies typically cover the policyholder and household members who are named on the policy, while commercial insurance covers the entire business, including employees or other drivers authorized by the business.
• Vehicle types. Personal insurance covers passenger automobiles like cars, SUVs, and trucks. By contrast, commercial insurance covers a wider array of vehicles such as heavy trucks, transit vans, and limousines, as well as any vehicle used for transporting goods, equipment, clients, or employees on a regular basis.

Will my personal insurance cover business use?

A personal auto policy applies “whether you’re commuting to work, going to the grocery store or taking a road trip with your family,” Friedlander says. But it will not provide coverage if you use your car for commercial purposes, he says. “For instance, you won’t be covered if you deliver pizzas or operate a delivery service for a retail establishment such as a grocery store or pharmacy.”

Additionally, a personal auto policy generally will not provide coverage if you use your vehicle to transport others for a ride-sharing service like Uber or Lyft.

“Some personal auto insurers, however, are now offering supplemental insurance products at additional cost that extend coverage for vehicle owners providing ride-sharing services,” Friedlander says.

When in doubt, it’s always best to consult with your carrier or insurance agent to ensure you are properly covered. Remember that claims against a personal policy may be denied if your vehicle is used for business purposes.

What is hired and non-owned auto insurance?

If you or your employees use personal vehicles for business tasks like running errands, visiting clients, making deliveries, picking up supplies, transporting people or goods for a fee, or carrying work-related tools and equipment, you may need mixed-use or hired and non-owned auto insurance (HNOA).

“Food service companies, cleaning services and construction trades are just a few of the businesses that may need HNOA coverage,” Kunkel says. “But any business that lets its employeers use their personal vehicles for work should consider getting this coverage,” she adds.

Your personal auto policy will cover you while commuting to work. However, it might not protect you in cases of work-related accidents that occur while performing work-related tasks such as picking up supplies or meeting clients.

“In the event an employee is driving his personal vehicle to a sales appointment, for example, and is in an accident that injures another party, the HNOA coverage protects the business from liability due to the employee’s actions while on corporate time,” says Michael Silverman, president of Silver Lining Insurance Agency in New York City.

Ask your insurance agent about getting proper coverage for mixed-use scenarios.

Is commercial car insurance more expensive?

Due to the high risk involved, commercial car insurance is typically more expensive than personal car insurance.

“For example, a personal policy might cost $1,200 annually, while a commercial policy for the same vehicle could be around $2,000,” says Bataille. “Higher premiums reflect the increased exposure to business-related risks like frequent driving or transporting goods.”

How much you pay for a commercial auto insurance policy will depend on several factors, including the size of your business, the industry you’re in, the number and type of company vehicles you have, the driving records of your employees, and the amount of coverage you need.

“Generally, a private passenger vehicle will cost much less to ensure than a heavy-duty vehicle like a dump truck. However, commercial insurance carriers also offer fleet insurance, and these policies are often available at a bulk discount,” Friedlander says.

Frequently asked questions

Who needs commercial auto insurance?

Commercial auto insurance is mandatory for business-owned vehicles in every state except New Hampshire, and in all states you will be financially responsible if you or an employee are at fault in an accident. If you're using a personal vehicle for business purposes, your personal insurance won't provide coverage in case of a work-related accident.

Golnoush Goharzad, founder of Goharzad Law in Irvine, California, says it’s essential to be aware of commercial vehicle insurance requirements.

“If the vehicle is used mainly for business purposes, such as delivering goods or transporting clients, you will need a separate commercial car insurance policy,” she says. “When you are transporting passengers or goods for a fee, legal requirements often mandate commercial coverage for these vehicles.”

For interstate commerce, federal regulations may require specific types of commercial coverage, such as motor carrier insurance.

“Penalties for non-compliance include fines and legal liability, and your insurance claims may be denied if the vehicle is used for business purposes without proper coverage,” she says.