Insuring a company car for business purposes carries some unique insurance requirements. Much depends on the ownership of the vehicle. When a company owns the vehicle, commercial insurance enters the picture, since it does whenever a car creates revenue or provides service through its use. Privately owned cars need commercial coverage as well as personal insurance. That is often provided as an add-on, depending on how much business use occurs. Discussed below are several common “company car” insurance situations.
Business-Owned Company Cars
Commercial insurance applies to company cars whether a business has one or one thousand cars under its control. For a company with only a few vehicles, the process of arranging insurance isn’t much different than personal coverage. Ontario’s minimum statutory coverage remains the same. Options and often discounts compare as well.
Differences emerge through the insuring process too. Businesses may prefer using agents or brokers who specialize in commercial coverage, or who represent underwriters who do. When it comes to risk, commercial vehicles have a higher chance of having an accident, since these are on the road more often, usually covering more kilometers in shorter periods of time. More mileage means more chance of insurance claim. This, in turn, means higher car insurance rates than for personal use only vehicles.
When a business owns a fleet of vehicles, its investment becomes substantial. Insurance coverage requirements may change along with fleet size. A small business with just a few cars can more easily monitor vehicle use. When fleet size grows, dozens more drivers may have access to company cars, so risk grows for the business. Increasing third-party coverage may counter that risk for many business owners.
Delivery vehicles may have, for example, a substantial amount of inventory on board at any time. Stock in warehouses may be protected against loss or damage through the company’s building insurance. Growing fleets change the value of inventory at risk on its trucks. Further changes to company car insurance can protect this inventory portion as well.
Adding roadside assistance to fleet insurance is another way to keep business rolling. This spreads out the expense of towing as well as offering a company’s drivers consistent and simple plans for dealing with breakdowns and emergencies.
Note that not all insurance companies may offer all fleet advantages. Insurers in Ontario retain a great deal of operational flexibility, even though the provincial car insurance market remains tightly regulated. The Financial Services Commission of Ontario provides this oversight. Insurers propose operating and underwriting for government approval. These rules bind the company’s operations until the proposal and acceptance of new procedures. Thus, it remains up to each insurance company to establish the services on offer and the premiums for which they invoice.
Employees Using Company Vehicles
Depending on the commercial policy and driver access required, company cars may be used for personal purposes by company employees. If this is permitted under fleet policies, the “company car” idea has more impact on tax matters than insurance. Called “personal driving” by the Canada Revenue Agency, it’s the use of a company vehicle by an employee for reasons other than conducting business. Often this is a perk employers offer to staff whose main function is calling on existing and potential clients, such as sales or field service staff. Employees may use the company vehicle for personal use, but that use is a taxable benefit — a non-cash benefit that has equivalent to cash value for tax purposes.
Most companies use a log system to track the personal use of business vehicles. Personal use includes driving to the first job of the day and home at the end of the day. This compares with a private driver going to and from work each day, which the CRA considers personal use. This is even the case when an employer insists that the employee take a company car to drive to work the following day. The CRA considers most client service as a “regular place of employment” when it comes to company cars, not merely a company’s office or factory. There are exceptions when travel alternatives don’t exist or the first call is a remote destination, but otherwise, to and from work is personal use.
The CRA provides an online calculator for estimating the taxable benefit for the personal use of a company-owned or leased vehicle.
Business Use of a Personal Vehicle
Privately owned vehicles can be used for commercial purposes only with special insurance provisions in place. Personal car insurance assumes that a vehicle is driven exclusively for the benefit of the insured driver, any policy named drivers, and incidental use by others with the consent of the policyholder. None of these drivers, however, can use the car for business purposes.
Business purposes could include:
- visiting company clients
- performing company errands, such as bank deposits
- storing or transporting goods on behalf of a company
- part-time work, such as newspaper or pizza delivery
- ride-sharing for income, such as through Uber or Lyft
Any time a car crosses the line between personal and business use, some form of commercial coverage must be added to protect the car owner against liability and other insurable losses. Failure to disclose such use to the insurer may void any coverage, should this omission come to light. The insurance company may not be obligated to honor claims made on the policy and they can cancel or refuse to renew a policy. In extreme cases, the car owner may even face charges of operating a vehicle without insurance. This carries fines of up to $50,000 in Ontario as well as possible license suspension and vehicle impoundment. The insured driver risks becoming identified as a high-risk driver and may have difficulty obtaining insurance in the regular market.
Business Use Solutions for Personal Vehicles
Insurers offer a number of solutions for commercial use of a personal vehicle, but these vary by provider. In some cases, the company may offer a solution. In July 2016, for example, Uber announced an insurance deal that covers passengers and drivers for all rides offered in Ontario. The policy also covers Uber drivers on duty, but not currently serving a client. The commercial coverage mimics the personal coverage a driver already carries while between rides.