Vehicle Insurance: Private or Business use?

9/17/2007 4:08:53 PM

We received quite a number of questions at Insurance Advisor regarding different types of vehicle use. Some people asked questions about the type of insurance needed if people travel with you between the office and home i.e “transport clubs”. Other related to use of your car for business purposes. I decided to look at the type of insurance required under different circumstances.

 
PRIVATE USE

 
Exclusively for Private use

The first distinction must be made between Private and Commercial use. When a vehicle is insured under private use then the vehicle may only be used for social and household purposes like driving to and from work or going to the shops etc. This type of vehicle insurance is usually also the cheapest since the insurer’s risk is relatively low, if mom drives to the shops or drops of the kids at school and so on, she spends less time on the road than someone using their vehicles to visit clients. Because she is less on the road she has a lower risk of being in an accident and hence the insurer will charge less to insure her car. Some insurance companies insures only women because their actuaries calculated that the risk to insure women is less than insuring men. Many companies may not want to insure persons under the age of 25 since they represent a too high risk. All of these factors will influence the premium you pay for your vehicle insurance.

Private: Business use

A second classification under private use insurance is “Private Business”. This refers to people using their vehicles for business but not commercial purposes. A sales rep using his/her vehicle to visit clients for instance or a doctor driving between hospitals to see patients are examples of this insurance class. The different insurance companies have their own definition and it is important that you make sure you understand their definition. If you do not insure your vehicle for the right kind of use it could lead to your claim being rejected. One could decide not to disclose the fact that your vehicle is used for business purposes but an assessor can and very often discovers this little indiscretion like the handyman that stated he does not use his bakkie for business purposes. When his bakkie was stolen in front of the house where he was busy tiling the assessor put one and one together and with further investigation found out he was on a job. The claim was rejected and the client left with the debt and no car.

The frequency that you use the vehicle for business purposes is important. If you primarily drive to work and back and maybe once per week visit a client or your boss asks you to deliver some papers at a client then this will not be seen as business use. If you regularly use your vehicle for business then you will be required to insure the vehicle under this type of policy. Clear the definition and frequency of use with your insurer.

Private business use is obviously more expensive that private only use. With closer investigation I found that the premiums are +/- 30% more expensive and it differs from company to company.   

You will have to ask yourself the question: Is saving 30% on the premium worth the risk of your claim being rejected because you did not disclose business use?

COMMERCIAL BUSINESS USE

If the vehicle is used in any way for business purposes then it is critical to make sure you have the right type of insurance. This is where commercial business insurance comes in. This classification is for when your vehicle is used for transporting goods or people for instance, if you deliver products to a client or transport people for a fee i.e a taxi. If you use your vehicle for any of these types of transport it has to be insured under a  commercial business policy. This typically is the most expensive types of vehicle insurance because the risk for the insurer is so much more.

If you transport people you will also require passenger liability cover. This is to cover you for claims from passengers that may get hurt in an accident while traveling in your taxi or bus.

It is very important that you disclose what the vehicle will be used for. It is also important to shop around and get different quotes. What is however more important is to compare apples with apples. Make sure you know what is insured and what not. Remember that different insurance companies have different definitions for various aspects of insurance. Some include and some exclude certain elements of insurance i.e designated drivers or some type of business use. Make sure you read the policy document. If the insurance company disclosed the terms of insurance you can never claim ignorance.