Fixed and variable rate (FAVR) programs are systems for reimbursing employees who use their personal vehicle for work. When compliant they are...
Which insurance coverage designation do I need to drive for work?
There are many designations for personal car insurance. If you use your personal vehicle for business purposes, you need to have a business use endorsement.
There are many different types of car insurance. If you drive your personal vehicle for work, it can be difficult to determine which insurance type is required. This article discusses the following four types of insurance:
Business use; and
Despite sounding similar, each is slightly different. If you drive for work, and you do not have the correct type of insurance, you may be at risk of not being covered in the event of an accident. If you have coverage that goes beyond what you need, your premiums and deductibles may be higher than necessary.
The 4 categories are designations or endorsements that insurance companies use to determine what activities you are undertaking with your vehicle. They are often marked next to the vehicle on the insurance policy document; multiple vehicles may be on the same document and have different designations. That is, you can insure two vehicles on the same policy, one for pleasure and one for business use.
The pleasure use designation is ideal for cars that are seldom driven. It indicates that a car is primarily used for entirely recreational purposes. A prime example is a classic car, driven only on the weekends in the summertime. Or it could be a stay-at-home parent’s vehicle that they use exclusively for grocery runs.
Pleasure vehicles are less likely to be driven at times and in places that expose vehicles and drivers to risk. Insurance rates for these vehicles are lower.
Personal auto insurance
Personal use coverage is for people who commute. It is sometimes referred to as “work/school” or “commuter” insurance because it covers you when you drive your car twice a day during busy rush-hour periods (in addition to pleasure driving).
Rush hour traffic results in more accidents than any other period of the day. In fact, 25% of all accidents take place during the afternoon and evening rush, from 3pm-6pm. Your insurer wants to know if you are going to be driving at this time, and along routes taken by commuters, because it means you are more likely to be in an accident.
Do I need business use insurance?
If you are a salesperson who uses their personal vehicle for work, the answer is probably yes. Business use endorsements are for Outside Sales Reps, Territory Managers, Real Estate Agents, and other professionals of that description. People who drive to and from meetings with clients during business hours fall in this category.
When the nature of your work involves carrying you, and perhaps a product prototype, to meet with a customer, you need business use insurance. Regular business driving involves not only the added risk exposure mentioned above, but also more mileage. More mileage, more time on the road, increases wear and tear on the vehicle, raising the chance of a breakdown.
Agencies want to know if this profile accurately describes the nature of their policyholders' driving habits. If a driver fails to disclose that they fall into this category, the insurance company may refuse to pay out claims in the event of an accident. Commuter use and pleasure use designations do not properly cover drivers for regular business driving.
There is another designation of insurance for drivers whose business-related vehicle activities are more intensive: they require commercial use insurance.
Commercial use vehicle insurance
Commercial auto insurance is the endorsement on policies covering vehicles used for transporting goods or people. This goes beyond business use, covering taxi drivers, telecommunications workers, utility vehicles, among others. Individuals who use their personal vehicle to do more than transport themselves between client calls need a commercial use endorsement.
Because there are more potential hazards when it comes to transporting people and freight, commercial use is more expensive than business use. Therefore, make sure you fully understand if you need a commercial endorsement before including one on your policy.
In our experience, agents will often mistake the work done by drivers on Cardata plans, and issue commercial use designations when a business classification would suffice. Cardata clients have the benefit of our support through their insurance buying process.
What else affects my insurance costs?
There are innumerable factors that affect how much you can expect to pay for insurance. Without knowing your comprehensive driver profile, it is impossible to say how much you will pay for insurance.
Your driving record, including past accidents and tickets, affects your premiums. So do your location, age, gender, and marital status. Your insurance agent will be able to tell you, once they have completed your profile, how much you will have to pay. However, it is important that you communicate to them how the vehicle will be used.
How does insurance relate to my vehicle reimbursement program (“VRP”)?
Vehicle reimbursement programs are systems for reimbursing employees who drive their personal car for work. To reduce risk, a proper VRP needs to implement insurance policies.
Cardata programs, for example, are designed to include insurance verification and consultation. With our clients, we set acceptable minimums for insurance coverage, which always exceed the minimums set by state law.
A proper vehicle reimbursement program ensures that driver policies include collision insurance, personal injury protection (PIP), property damage, uninsured driver insurance, and more. Cardata’s specialists review the policies of all our drivers, and promptly inform them of any lapses or gaps in their coverage.
A VRP provider can go further and provide consulting services to make sure clients get the necessary coverage affordably. If drivers use personal vehicles for work, but not for commercial purposes—like hauling equipment or transporting people—they do not need to pay the higher fees associated with commercial use insurance.
Cardata clients can leverage Cardata’s experience with insurance policies to ensure that they receive the right coverage. If you are a Cardata driver, and you are unsure about what insurance type you need, or if you think your insurance agent is making a mistake in their recommendation, get in touch with your Cardata support associate.
DISCLAIMER: This article is not legal advice; nothing in this article should be taken as such.
 Cardata has been studying vehicle insurance since 1999, and much of this article is based on primary and proprietary research.