Purchasing equipment is one of the biggest challenges for anyone starting or operating a contractor business. Among the equipment you need to purchase, your vehicle is likely to be the one you’ll need to make early— and one that carries a significant amount of liability risk. There’s a lot to think about beyond just what type of vehicle you’ll need. Your considerations will also include whether you’ll use your personal vehicle, whether you’ll rent or own the vehicle, and whether employees (and 1099 contractors) will be allowed to use the vehicles.
Using Your Personal Vehicle? Update Your Insurance Immediately
Whether to use your own vehicle or purchase/rent a separate vehicle for work is going to be a critical decision. Both options carry their own risks and benefits that might impact your liability.
Let’s say you don’t have the finances to purchase or rent a separate work vehicle just yet. If that’s the case (and it’s a common situation), you may decide to use your personal vehicle as you build your business. Using your personal vehicle is perfectly fine and legal from a business perspective, but your insurance company may not cover accidents that occur as you use your vehicle for work: neither while you’re traveling for work purposes, or if something happens on a job site. If your personal vehicle becomes your day-to-day work truck, a personal auto insurance policy will likely reject your claims following an accident or theft.
Your plan to use your personal vehicle for work should start with changing your insurance policy. Update your vehicle insurance coverage before you start using your personal vehicle for work. Switch from using a Personal Auto Insurance policy to a Commercial Auto Insurance policy that’s designed specifically for your situation.
Purchasing a Vehicle Just for Business
There’s a good chance your personal vehicle isn’t properly equipped to handle the type of work you plan to do. Maybe it’s not spacious enough, or you need to modify it with the type of racks and storage needed to house specialized equipment. In that case, you may decide to purchase a new vehicle.
If you purchase a vehicle for your business, it’s highly recommended that you register that vehicle to your business instead of to yourself. Vehicles are considered toxic, high-risk assets. Whether you hold it under an LLC or other type of incorporation, you separate your personal assets from liability and seizure should any issues arise related to the vehicle.
As with a personal vehicle used for work, you’ll also need to purchase Commercial Auto Insurance. And since you’ll likely have that vehicle registered to your business, purchasing Commercial Auto Insurance is a legal requirement under California law.
Renting or Leasing Work Vehicles for Your Company and 1099 Workers
Some contractors choose to rent work vehicles instead of owning them. This is an uncommon route, but it’s possible to accomplish safely and with liability protection for your business. Hired and Non-Owned Auto Insurance will offer liability protection for you, your workers, and 1099 contractors you may use from liability issues related to the use of rental cars.
If you plan to use a vehicle you don’t own, leasing may be a better option and is far more common. Leasing a work vehicle will ultimately cost you less in the long term. A Commercial Auto Insurance policy will cover any leased vehicle you use for your business, protecting the same as a vehicle you own.
Alternatively, you may want to consider buying a used vehicle as a cost-saving measure. Keep in mind, while you’ll save money on the initial purchase of a used vehicle, you’ll incur additional risk, such as unexpected maintenance costs or missed service calls due to unexpected mechanical issues.
Overall, you’ll likely be better off either leasing or owning the vehicles you use for your business. From there, you’ll just need to purchase the requisite insurance coverage for each vehicle to help manage the liability risks of who and how those vehicles are used.
Don’t Delay Your Insurance Needs
The last thing you want to do with your work vehicles is delay purchasing liability coverage. One accident or theft can cost your business thousands of dollars. The losses could be enough to put you completely out of business. And because vehicle accidents and thefts against commercial vehicles are so common, it’s not a risk worth taking.
Do you need to learn more about insurance needs for contractors? Give us a call at 650-873-1255 to get expert advice on contractor vehicle insurance needs and rates in CA. .
