Is Commercial Auto Insurance Cheaper than Personal?

If you have recently started your own business, you may be wondering whether commercial auto insurance is cheaper than personal auto insurance. Apparently, it’s not. Commercial auto insurance is not cheaper than personal auto insurance, in fact it’s much more expensive.

Whether you’re running a small business with just a couple of vehicles, or a large enterprise with a fleet of vehicles such as cars, vans, trucks etc., you need to acquire insurance coverage for all these vehicles.

On top of that, you also need to ensure that all your employees are covered by your business’s commercial auto insurance policy. So, you will have to purchase more auto insurance coverage for commercial auto insurance compared to personal, and of course with higher limits.

Generally commercial vehicles are more prone to accidents compared to personal vehicles, especially because they’re driven much more frequently and for a much higher mileage. So, that’s another reason why commercial auto insurance is more expensive, there are higher chances of more accidents and insurance claims.

Commercial Auto Insurance vs Personal Auto Insurance: Comparison of Average Rates in Michigan

When it comes to the comparison of both commercial and personal auto insurance, it is crucial to refer directly to the numbers.

The average cost of commercial auto insurance coverage in Michigan is $5,282 per year for minimum coverage, and $8,723 per year for full coverage. Compared to that the average annual cost of personal auto insurance is $873 for minimum coverage and $3,131 for full coverage.

Even small businesses have a bunch of commercial vehicles which includes regular sedan cars, mini vans, vans, trucks and more for various business-related purposes such as transportation of employees, distribution of products, and for offering services such as delivery, and ridesharing.

Here’s a breakdown of annual commercial auto insurance cost for small businesses based on the type of vehicle per year.

• Standard Sedan Cars: $600 to $2,400
• Cargo/Delivery Vans: $3,300 to $6,000
• Trucks:  $8,000 to $12,500 
• Limousine: $4000 to $10,000 
• Taxi: $5,000 to $10,000

Data Source: Car and Drivers, and The Cost Guys

Based on the overall comparison here, the average cost of commercial auto insurance far exceeds the cost of personal auto insurance, which shows that commercial auto insurance is far more expensive compared to personal auto insurance.

Moreover, this is the average data of commercial auto insurance cost for small businesses. If large businesses are considered here, the average cost can increase by 4 to 5 times or more.

If you’re looking for an affordable insurance agency in Michigan offering both personal auto insurance, and commercial auto insurance, please consider checking out our cheap auto insurance coverages for every budget. If you need to consult with us in-person, please visit our local office in Flint MI, Saginaw MI, and Mt. Pleasant MI.

Why is Commercial Auto Insurance More Expensive Compared to Personal Auto Insurance?

Commercial auto insurance is significantly more expensive compared to personal auto insurance. But why exactly? Typically, businesses require more auto insurance coverage and much higher limits compared to personal auto insurance.

When it comes to personal auto insurance, it’s specifically designed to just cover you financially. But commercial auto insurance extends far greater, as it’s designed to cover the business’s vehicles, employees, and assets.

Here are 5 key reasons why commercial auto insurance is more expensive compared to personal auto insurance as follows.

Requires Financial Protection of Multiple or Several Vehicles

When it comes to business activities commercial vehicles are required for various purposes. These vehicles can be used for transportation of employees, distribution of products, and to offer services like delivery of food, groceries and other items.

Even small businesses would require at least a couple of different types of vehicles like sedan cars, vans, trucks and more. For personal use, most households in Michigan own an average of a maximum of 2 vehicles.

So, as businesses require purchasing auto insurance for multiple or even several vehicles that’s a vital reason why commercial auto insurance is more expensive than personal auto insurance.

Commercial Vehicles Are More Expensive to Repair Compared to Personal Vehicles

Repair costs significantly vary depending on the price of the vehicle. On average commercial vehicles such as semi-trucks and vans are comparatively a lot more expensive than average sedan cars that are commonly used for personal reasons.

The price of semi-trucks will cost you around $70,000, whereas the price of average sedan cars will cost you around $20,000 to $30,000. Generally, the more expensive a vehicle is, the more expensive its parts and repair costs are.

Apart from the drastic difference in price, commercial vehicles are larger with more complex systems and specialized parts that are more expensive to repair compared to standard sedan cars.

Auto insurance mainly provides compensations for vehicle repairs, so the more expensive the repair cost is, the higher its premium is likely to be, and that’s why commercial auto insurance is more expensive than personal auto insurance.

More Auto Insurance Coverages with Much Higher Limits

Businesses require more auto insurance coverage with higher limits. According to auto insurance experts it is necessary for a business to have auto insurance coverage of at least $500,000 and a recommended coverage of $1 million for adequate financial protection.

Whereas for personal auto insurance experts recommend auto insurance coverage limit of $100,000 per person, $300,000 per accident, and $100,000 for property damage. The recommended coverage for commercial auto insurance is twice as much compared to personal auto insurance.

So, this means it is necessary for businesses to invest 2 times, or more on auto insurance compared to policyholders that acquire auto insurance for personal financial protection.

Increased Risk of More Accidents and Frequent Auto Insurance Claims

For starters, if you compare the average mileage of commercial vehicles vs personal vehicles, the average annual mileage covered by commercial vehicles is 100,000 miles per year, whereas for personal vehicles it’s just 13,500 miles per year.

The statistics above clearly demonstrate that commercial vehicles are driven on the road a lot more frequently and extensively compared to personal vehicles. So, this increases the risk of accidents for commercial vehicles a lot more than personal vehicles which leads to much higher insurance claims for commercial vehicles.

Impact of Employee Driving Records on Auto Insurance Rates

When you apply for commercial auto insurance, the insurance company will verify the driver records of every employee in your company. The purpose of this verification is to identify how prone your employees are to claiming commercial auto insurance.

A poor driving record with traffic violations, accidents, and even legal penalties such as license suspension, and fines indicate signs of a high-risk driver. On the other hand, a good driving record means there are less chances for auto insurance claims, so your company will get a lower rate.

This is another reason why commercial auto insurance is more expensive than personal auto insurance mainly because here the driving record of every single employee is considered.

Based on the average driving record of your employees your commercial auto insurance will be determined. Whereas for personal auto insurance only individual driving records are considered. So, if you’re applying for personal auto insurance your driving record will be verified based on which you will get a quote.

Does Personal Auto Insurance Cover Business Use?

Well, if you’re using your car to commute to work, and to meet clients, you might be wondering does my personal auto insurance cover business use? While driving to work is considered a personal activity, but if you’re using the car to meet clients, or to provide services, or any sort of commercial activity then no, your personal auto insurance won’t cover it.

Commercial activities have higher risks of more accidents, and that’s mainly the reason why there are two separate types of auto insurance policies for personal auto insurance and commercial auto insurance. So, if you need auto insurance for business activities then it’s crucial for you to consider getting commercial auto insurance.

Keep in mind that, if you claim personal auto insurance, and if your insurance company finds out that you were using the car for commercial purposes then your insurance claim will be considered invalid. It can even lead to the cancellation of your personal auto insurance policy for violating the agreement.

If you need suggestions to get affordable commercial auto insurance within your budget, then you should read our guide on how to get commercial auto insurance.

How to Get Cheaper Auto Insurance Rates?

Whether you’re shopping for personal auto insurance or commercial auto insurance it is always important to find affordable rates with the best coverage options. As personal and commercial auto insurance rates are different insurance policies, it is essential to know how to secure the best rates for each of these policies as follows.

For Commercial Auto Insurance

Here are some effective tips that you should consider following to ensure getting affordable and cheap commercial auto insurance rates.

Explore multiple auto insurance companies and compare their rates.

Enforce strict disciplinary measures to promote responsible driving practices among all employees.

Consider hiring employees with a good driving record, and insurance history. 

Bundle commercial auto insurance with other policies and take advantage of available discounts. 

Opt for higher deductibles, but ensure the amount is manageable for your business in case of a claim. 

Consider paying the annual commercial auto insurance rate in full to enjoy a significantly lower rate.

For Personal Auto Insurance

Here are some effective tips to increase your chances of getting cheaper and more affordable rates for personal auto insurance.

• Get quotes from multiple auto insurance companies and compare their rates. 
• Maintain a clean driving record. 
• Complete a defensive driving course to demonstrate responsible driving and potentially earn discounts. 
• Opt for discounts and bundle offers, such as supplemental spouse auto insurance. 
• Follow traffic laws and adhere to your policy terms to avoid penalties that could increase your rates.

Final Remarks:

Commercial Auto Insurance is More Expensive than Personal  When it comes to commercial auto insurance, you need to purchase a higher coverage limit especially as it’s necessary to cover multiple people, and vehicles. Whereas for personal auto insurance it’s usually just one individual.

Commercial vehicles are generally more expensive than personal vehicles, so they are more expensive to repair and replace. Also, commercial vehicles are more prone to accidents as they are used more frequently and extensively compared to personal vehicles. So, there’s a higher chance of auto insurance claims for commercial vehicles.

Both commercial and personal auto insurance premiums vary based on numerous factors. The only way to know your exact auto insurance rate is to consult with an insurance agent and get a quote.

FAQ

What is the difference between personal and commercial auto insurance?

The difference between a personal and commercial auto insurance is personal auto insurance is designed to cover your individual liability costs, medical bills, vehicle and property damages. Whereas a commercial auto insurance is designed to cover all employees, vehicles and business assets.    

Is it cheaper to get commercial or personal auto insurance?

Personal auto insurance is significantly cheaper than commercial auto insurance mainly because personal auto insurance covers just one person, but commercial auto insurance covers an entire business. Typically, commercial auto insurance is usually purchased with much higher coverage limits which makes it a lot more expensive compared to personal auto insurance.    

Can I put commercial auto insurance on my personal vehicle?

Commercial auto insurance can cover your personal vehicle in some cases but not all. If your personal vehicle is enlisted in your commercial auto insurance policy, then yes. It also covers personal use if you use it for commuting to work and back home, along with meeting clients and other required transportation for business use. However, if you use it for strictly personal activities like running errands or driving on a tour then your commercial auto insurance won’t cover your personal vehicle.  

Is commercial auto insurance cheaper than personal auto insurance in Michigan?

No, commercial auto insurance isn’t cheaper than personal auto insurance in Michigan. Just like any other state, commercial auto insurance is significantly more expensive in Michigan compared to personal auto insurance.