Wednesday, June 20, 2007

Commercial Vehicle Insurance -- Why is it needed?

I'll be writing several articles on commercial vehicle insurance, so to get started let's begin with the "why". In general, personal auto policies (PAP) are easy to obtain and offer wide coverage to people and their vehicles. In some cases a PAP is not available due to usage, type or owner of the vehicle. Commercial use is unacceptable or excluded under the policy language of a PAP. This may lead to a denial of coverage confrontation with an insurer, so understanding the difference is critical to the vehicle owner. What three factors determine personal vs commercial use?

1. Use of the Vehicle

What is generally acceptable for personal use?
  • Day to day commuting or personal errands
  • Car-pooling
  • Volunteer work for an organization
  • Infrequent business related errands
  • Infrequent business use where auto is owned by an individual and used solely by the individual.
  • No hauling of dangerous materials.
  • No more than three job site visits a day.
  • Consumer oriented sales or service or direct home sales (Realtors, Avon) May require a Business Use endorsement to a PAP.

A Business use endorsement on a PAP is usually a 20% (or so) surcharge.

Unacceptable Business Uses for PAP include:
  • Pick-up and delivery of goods (pizza, newspapers, or any other products).
  • Transport of persons or property for a fee. Includes livery or taxi service.
  • Transport of clients, children, hotel/motel guests, medical patients or migrant workers during the course of employment.
  • Snow removal.
  • Vehicles made available or assigned to employees on a regular basis.
  • Any other business use of vehicle that is not indicated under acceptable business use.

2. Type of Vehicle - What the vehicle is built FOR is a good indicator of commercial usage. Commercial vehicles include:

  • Vehicles with a manufacturer-rated capacity of greater than 3/4 ton (some insurers will offer PAP for vans or pick-ups if used for personal use).
  • Limos, ambulances or hearses.
  • Vehicles with printing or advertising.
  • Vehicles altered for business related use with permanent equipment; sometimes ladder racks are acceptable.
  • Vehicles used for plowing snow.

So if you buy a truck tractor just because you like the way they ride, you will still need commercial coverage.

3. Owner of Vehicle - Over the years, accountants and business owners have tried to save tax dollars by purchasing or leasing their vehicles under a business name then tried to save premium dollars by insuring under a PAP. Again, a denial of coverage situation. If a business entity is the vehicle owner, then the vehicle must be insured commercially.


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