Vehicle Use and Why It Affects Auto Insurance

Insurance companies need to know how you use your car so they can calculate your level of risk and price your policy accordingly. When it comes to vehicle use, they’ll want to know three major things:

• Do you drive your car for personal or business purposes?
• If it’s a personal car, do you use it to commute to and from work or school?
• On an annual basis, how many miles do you drive the car?

These vehicle use factors will impact the type of policy you need to buy and how it gets priced by your insurance company. Different companies weight these elements slightly differently, so it’s possible your answers to the questions above will help determine which company is best for you.

Determining Vehicle Use

Depending on how you use your vehicle, it may be tricky determining if it is for commercial or personal use and for pleasure or commuting. Here’s a quick breakdown of the different use types to help you decide.

Commercial vs. Personal Use

It’s usually pretty easy to figure out whether a vehicle should be covered under a commercial auto policy rather than a personal policy. Any of these factors would be a good indicator:

• If the vehicle is owned by and registered to a business (regardless of whether the name of the business is on the side of the vehicle).
• If the vehicle is driven exclusively by employees of a business.
• If the vehicle is frequently used to carry equipment, tools, or products for a business.
• If the vehicle is the business (some examples would be a taxi, courier, or delivery service) or is integral to performing a service the business provides.
• If the vehicle is equipped with commercial add-ons such as cranes, lift-gates, winches, or snow plows.

If any of these apply to your vehicle, you probably need to get it covered under a commercial auto policy.

Business-y Personal Use

Sometimes the line between personal and commercial is not so clear.

If you, as part of your professional work, take clients with you to appointments, you can likely do so under a personal policy. This assumes that the driving is not the work—that is, you’re not a taxi service or driving for a ride-sharing company like Uber or Lyft. If you’re an attorney or an accountant and you take your client with you to a meeting, your primary business is lawyering or accounting and not transporting people from place to place.

The same goes for people whose business requires them to be several places during the day. A real estate agent or home health care worker can safely drive from appointment to appointment under a personal policy. The travel is integral to the work, but since no clients or goods are being transported, this is considered personal business use and not commercial use.

There’s also an exception for those with a part-time or side business that may require you to transport products on an occasional basis. If you operate a lifestyle business selling relatively small quantities of product, you’re probably okay doing so without a commercial policy. But if that business becomes more of a full-time gig, you’ll need to reconsider.

Different insurance companies have different policies, so the best thing is to talk to your independent agent to verify you have the correct coverage in place. Insurance companies are well within their right to deny a claim for an accident involving someone who was conducting commercial business under a personal auto policy. If you’re not sure, make sure. The peace of mind is worth it.

Pleasure Use vs. Commuting

There’s a simple way to determine whether a vehicle is used for commuting or not. Ask yourself: Do I climb into the car most mornings and drive somewhere, park it there for the majority of the day, and then drive it home in the evening? If the answer is yes, you’ve got a commuting car.

On the other hand, if you use the car on a daily basis but nobody drives it to and from work or school, it would be considered a “pleasure use” vehicle. This label also applies to a vehicle that is driven only occasionally. Some insurance companies use mileage to determine whether a car is a pleasure vehicle or not. For example, if you drive fewer than 7,500 miles per year (which works out to about 20 miles per day), your insurer might classify your vehicle for pleasure use and insure it at a lower rate.

The reasons behind this are simple. Commuter vehicles are driven more miles, which means they’re subjected to greater risk than pleasure vehicles. They also tend to be on the road during morning and evening rush hours, when the risk of accidents is greatest.

Is insurance cheaper for commute or pleasure vehicles? Insurance is slightly less expensive for vehicles driven for pleasure since they are driven fewer miles and thus subjected to lesser risk.

Determining Mileage

Mileage is a final vehicle use factor that influences the price of your auto insurance coverage. According to the Federal Highway Administration (an agency of the U.S. Department of Transportation), the average number of miles driven per driver in the United States is 13,476. Your own mileage will be determined by where you live and where you work, whether you have children, and the distance you drive to visit friends and family.

Does how much you drive impact your car insurance rate?

Insurance companies use different mileage breakpoints in determining pricing. Some set their discount level as high as 15,000 miles, while others give you a break if you drive 8,000 miles or fewer. Some will take your word for it, while others want to check your odometer reading.

In most places, mileage is a relatively minor element of the insurance pricing formula. In California, though, state regulations mandate that mileage be the second most important factor in auto insurance pricing, after a customer’s driving record.

Shopping Around for Perks

As with most things in the insurance business, you’ll see some pretty big differences in how much emphasis different insurance companies place on the factors of business use, commuting, pleasure use, and mileage. Your independent agent can help you identify the right insurer based on your own driving patterns.