What Type of Auto Insurance Do You Need If You’re Self-Employed?

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What Type of Auto Insurance Do You Need If You’re Self-Employed?

Aug 17, 2022
Auto Insurance

The number of people working from home has gone nowhere but up in the last few years, starting with the societal changes brought about by COVID-19 and continuing to grow. In fact, statistics have shown that more than 51% of new businesses are people working from home. This accounts for about 22 million small business owners who are self-employed without additional employees.

Starting your own business, even if it is work-from-home, comes with its own set of challenges and questions. You might need to deal with payroll if you do have employees, take care of your tax situation, and make sure you’re properly insured. Personal insurance just won’t cut it anymore when you’re a small business owner — you’ll have new insurance needs and will need new coverage.

Protecting yourself from liability is one thing — but can you keep your personal car insurance, or do you need to switch to commercial vehicle insurance? The answer is, “it depends” — specifically on what you’re using the vehicle for.

The Different Types of Auto Insurance For The Self-Employed

Personal Auto Insurance

First, the good news: for many small businesses, particularly if you’re a sole proprietor without any employees or partners, your personal auto insurance may be enough. If you don’t use your vehicle for anything critically related to your business (such as hauling tools around or ferrying clients places), you probably don’t need commercial vehicle insurance. In fact, because being a freelancer can have a lot of hidden costs and result in a higher tax bill, you may want to review your auto insurance policy and shop around for cheap car insurance quotes. And while you’re doing so, make sure to ask about commercial auto insurance and see if it’s something your situation calls for.

Commercial Auto Insurance

On the other hand, if you do regularly use your vehicle for business purposes, you should inform your insurer that you’re doing so and get some new coverage. Business auto insurance will protect you from both damages and liability should something happen in the course of you doing your job.

What kind of businesses need dedicated business insurance? Here are some examples.

  • Working as a caterer and moving food and supplies to and from event venues.

  • Hauling freight or goods from place to place, such as parcels or food delivery (including things like Uber Eats or DoorDash).

  • Selling food from a vehicle such as a food truck.

  • Having your vehicle operated by employees, or owned by a corporation or business.

Even some larger-than-usual vehicles might be subject to needing business insurance, such as dump trucks, semi trailers, etc.

If you don’t have business insurance and something happens, your personal insurance may not pay the claim, which could spell financial disaster — particularly if medical bills are involved.

Rideshare Insurance

Rideshare and taxi services are something of a special case when it comes to insurance. The company you work for may cover some (but not all) incidents, and personal insurance is likely to not cover it at all.

For example, some rideshare services provide coverage while the car has a passenger, but not while the driver is awaiting a client request. If someone hits your car or some other mishap takes place in that time period — neither your personal insurance nor the rideshare company may cover it.

The best way to prepare for this is to read your agreement with the rideshare company thoroughly, and talk to your insurer about what coverage you need. Taxi or courier insurance is typically offered as a specialized policy.

How To Determine If You Need Commercial Auto Insurance

If you’re not sure whether or not you need commercial car insurance, a good way to start is to list some of the factors of your vehicle usage, such as:

  • How many times you use the vehicle for business use vs. personal use

  • If more than one driver uses the vehicle (particularly if they’re an employee or partner)

  • If you use the vehicle for deliveries or to transport passengers, goods, and equipment.

After doing that, the next step is to contact your insurer and discuss the list with them. They’ll work with you and help you figure out just what coverage you need to be protected.

Why is Commercial Vehicle Insurance More Expensive?

In some cases, being self-employed can save you money on car insurance, particularly if you never drive and can claim a discount such as a low mileage discount. But if you use your vehicle for commercial purposes and drive it regularly, your insurance premiums are likely to increase. Why? Because commercial vehicles are generally driven more often — probably on a daily basis — and that means higher risk for accidents and other incidents. This is all the more reason to shop around and compare rates.

The opinions expressed in our published works are those of the author(s) and do not necessarily reflect the opinions of the National Association for the Self-Employed or its members.

Courtesy of NASE.org