Laura Berry is a former State Farm insurance producer and insurance expert.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 28, 2021

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Here's what you need to know...

  • When you’re buying a Personal Auto Policy, the company will consider usage-based factors to calculate risk and also premiums
  • The standard usage classes that a driver can be assigned to includes: pleasure, commute, and business
  • Out of all of the usage classes, business class comes with the highest premiums because of the risk associated with this type of use
  • Under a personal insurance policy, some types of business use is acceptable. It’s important to learn about the business use exclusions written into personal policies before you purchase coverage
  • Any vehicle that’s owned by your business or that’s used solely for business will need a commercial auto policy
  • If you’re driving your vehicle for prohibited business use and you experience a loss, your insurer has the right to deny your claim for violating the terms of your contract

When you’re applying for auto insurance, insurance companies use a process called underwriting to assess risk and decide whether or not you’re eligible for coverage through the carrier. To ensure that every policy is underwritten fairly, the company will have an official set of underwriting guidelines that’s filed through the set. These guidelines detail just who’s eligible for coverage and how specific rating factors will have an effect on an applicant’s premiums. Compare car insurance rates now by using our FREE tool above!

While there’s a huge focus placed on a driver’s driving record and accident history, insurance companies car about much more than just these rating factors. In fact, someone with a clean record and years of driving experience can still be considered ineligible for coverage because of how their vehicle is used. Before you assume that you’re covered under your policy for all scenarios, find out how an insurer defines business use and what types of business use is allowed.

How are personal car insurance rates calculated?

When you buy personal car insurance, your rates are extremely personalized. You can’t just walk down an aisle, pick a package and ask for a price check.

Anyone who’s applying for insurance needs to provide their personal information so that the rates for their household can be determined.

As rates are being determined, the insurance companies look at your lifestyle and driving history to see how exposed you are to loss. Only after the company is able to see the risk can they determine what risk class you fall into. Here’s a list of the rating factors companies look at to place you in a class while determining your rates:

  • Gender of driver
  • Age of driver
  • Age licensed or years of driving experience
  • Vehicle type and safety record
  • Driving record within the last 7 years
  • Accident history within the last 3 years
  • Credit history
  • Insurance history
  • Annual mileage
  • Driving habits and vehicle usage

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Are there different types of auto policies?

There are several different forms of car insurance. There is the standard Personal Auto Policy (PAP) form and other specialty forms for short-term coverage or high-risk drivers. There are also standard commercial or business auto plans that provide coverage for a different type of risk exposure. It’s important that you learn which type of policy that you’ll need based on the type of vehicle that you own and how it’s used.

What is a standard Personal Auto Policy (PAP)?

A Personal Auto Policy is a standard form of coverage that protects drivers of private passenger vehicles, pickups and vans that are classified as eligible vehicles under the policy. Vehicles covered under the vehicle must be owned, leased, or financed by the named insured and driven for personal use. The policy itself may provide the following types of coverage:

  • Bodily Injury Liability
  • Property Damage Liability
  • Medical Payments/Personal Injury Protection
  • Uninsured Motorist Protection
  • Uninsured Motorist Property Damage
  • Comprehensive
  • Collision
  • Rental Car Reimbursement
  • Roadside Assistance

Will my PAP cover me when I drive for business?

As the name might imply, a personal policy is designed to protect you while you driving your personal car around time. What you might not know is that the personal form for auto coverage does protect you while you’re on your commute and, in some cases, while you’re driving your personal car for business. For business use to be covered under your PAP, the vehicle must be registered in your name and used for both personal life and business.

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What’s the difference between commute and business use?

When you’re selecting a usage class on usage-based insurance, deciding between commute and business can be very confusing. Pleasure drivers use their vehicles strictly for recreation or running errands. Commuters use their vehicles to go to and from their office or a single work site. Students who drive to school would also be classified as commuters.

Students who drive to school are classified as commuters.

To be assigned to a business class, you will drive to and from several sites while you’re engaged in your occupation or trade. You might be a real estate agent who goes from property to property or a construction worker going from work site to work site. Business class is the most expensive class because you have the highest likelihood of getting into an accident.

What’s excluded under your personal insurance?

Protecting a personal vehicle that you drive for business during the week can get confusing. You might be able to keep everything under a single policy, or you might need to bind a specialty commercial policy to cover you while you’re engaged in your profession. It’s important that you know business use that’s covered and business use that’s not. Here are specific business-related exclusions written into personal car policies:

  • Autos owned by your business
  • Autos that are hired or leased by your business
  • Autos that are driven by your employees
  • Autos that are used solely for business
  • Vehicles that are equipped with commercial equipment used in a trade
  • Vehicles that exceed a specific Gross Vehicle Weight
  • Autos used in the business of selling, repair, servicing, storing or parking vehicles
  • Autos used for farming or ranching

When is it time to buy a commercial auto policy?

If you’re still not sure which type of policy to purchase, you should speak with your agent. You’ll need to let them know what type of business you’re engaged in, how you drive your car, who drives the car, and how often this all takes place. If your car is registered in your company’s name or you’re driving others around for a fee, you automatically need commercial insurance.

The definition of terms used in insurance can be confusing. Now that you know the definition of business use, it’s time to pinpoint which policy you need. Start to get quotes for coverage through an online rate comparison site and bind coverage that’ll protect you all of the time. Start comparing car insurance rates now by entering your zip code in our FREE tool below!