What is business car insurance and how does it work?

By | May 24, 2022

Every driver in the UK is familiar with motor insurance, a legal necessity for all cars on the roads. But many people are unwittingly invalidating their car insurance policies by using their vehicles for work-related activities beyond their daily commute. Doctors, cleaners and makeup artists might be aware that driving between clients constitutes business use, but there are still thousands of people overlooking daily errands that insurers consider as business usage. Even popping to the bank from your place of work or driving to a one-off training day can require specialist cover.

Anybody using their car for business-purposes requires business car insurance, a particular type of motor insurance that can cover you for both work and play. To ensure you’re legally compliant, business car insurance is an important policy to consider for anyone who finds themselves behind the wheel during the working day.

Get up to speed with business car insurance through the following sections:

  • What is business car insurance?
  • What is covered by business car insurance?
  • Do I need business car insurance?
  • How much cover do I need?
  • How much does business car insurance cost?
  • How to find a business car insurance provider
  • Final thoughts & FAQs.

What is business car insurance?

Business car insurance is a specific type of vehicle insurance policy that can cover drivers using their car for both personal and work-related use. A standard car insurance policy can only cover you for non-business-related activities, bar your commute to work. A business car policy can protect you for the trips you make during your working day, as part of your job.

Using a car for work tends to mean more time spent per day in your vehicle, at busier times and often on unfamiliar roads. These factors increase the risk of an accident, and thus the likelihood of making a claim. Business car insurance reflects these higher risks to the insurer and tends to be more expensive as a result.

Business car insurance and commercial vehicle insurance are terms often used interchangeably. However, they constitute different types of insurance. Business car insurance covers cars used for business use, besides commuting, on top of social, domestic and leisure use. Commercial vehicle insurance is typically used for delivery vans, taxis, trucks and company fleets exclusively for the activities of the business, taken out by the company in question.

What is covered by business car insurance?

Business car insurance can cover people who use their vehicle for any of the following work-related activities:

  • regularly commuting to different locations, such as between work premises, to various offices or sites
  • visiting clients regularly
  • driving colleagues around, such as to a business site or meetings
  • using your car for other tasks related to your work, such as trips to the bank or post office for work purposes or attending conferences or training days.

The specific claims covered by business car insurance depend on the type of policy you take out. Broadly, business car insurance can cover the following:

  • breakdown cover
  • vehicle recovery in the case of an accident
  • loss or damage to your car
  • personal accident cover
  • damage costs for personal belongings in the vehicle
  • coverage when driving abroad, usually up to a specified limit
  • access to a hire car if the insured vehicle is in for repair
  • cover for windscreen repair and replacement
  • lock replacement if your keys are lost or stolen.

Do I need business car insurance?

Car insurance is a legal requirement for driving on any UK roads. If you’re using your car for work-related activities other than commuting, you must have business car insurance in place. Without it, should you become involved in an accident while carrying out a business task, you risk invalidating your existing car insurance policy, leaving you underinsured and liable to cover the cost of any claims. Not only is this a financial risk, but you might be committing a legal offence.

Ordinary car insurance can typically only cover you for social, domestic and personal use, anything from driving to visit friends and family, going to the shops, driving on holiday or visiting the dentist. As many car owners use their vehicle for commuting, many insurers can also cover travel to and from your place of work. However, it’s always important to check with your provider to ensure you have sufficient coverage.

If you use your car for anything other than the commute, whether that’s as infrequently as running a business errand or attending a meeting, or whether driving occupies a significant part of your working day, you will typically need a business car insurance policy.

If your employer has provided you with a company car, you are unlikely to need to arrange business car insurance yourself. Typically, the leasing company provides insurance with the vehicle, taken out by the company on your behalf.

How do I know if I need business car insurance or commercial car insurance?

Both types of insurance cover your vehicle for business-related activities. The distinction is on the role the car plays in your job: if your job role directly involves using your motor, such as is the case for delivery drivers or taxi drivers, you typically need a commercial car insurance policy. If you are driving within working hours but driving is not an intrinsic part of your job role, such as if you could use public transport or take a taxi instead, then business car insurance tends to suffice. If you’re unsure on the type of policy you need, be sure to seek advice from an insurance consultant or broker.

How much cover do I need?

There are several levels of cover you can choose to take out when purchasing a business car insurance policy. Broadly, there are three classes of business car insurance, all of which cover social, domestic and leisure use. These are:

  • Class 1. A Class 1 policy typically covers the driver when commuting between multiple places of work. It’s often a type of plan taken out by those needing to visit clients or customers, such as doctors or care workers who drive to see patients. It’s usually the cheapest form of business car insurance available.
  • Class 2. As an extension of Class 1, this policy typically covers the same as above but allows you to add a named driver, who will also have cover while driving the car. Named drivers generally are colleagues or coworkers. Many insurance suppliers require the policyholder and the named driver to work for the same company.
  • Class 3. This type of policy can cover long-distance driving, relevant to drivers who spend a substantial portion of their working day on the road, such as for door-to-door salespeople. Owing to the high mileage clocked by Class 3 drivers, this type of policy tends to be the most expensive. It’s important to note that Class 3 can cover the delivery of samples, but not the delivery of commercial merchandise.

The class of cover you need depends on which of the above activities are relevant to your work-related car usage. Once you’ve decided on an appropriate type of policy, you need to determine the level of protection you need, from a further choice of three. The first, third party only cover, constitutes the minimum legal requirement. The top two levels of cover offer optional, added protection. The levels are:

  • Third-party only cover. The lowest level of cover available only covers the cost of claims of third-party injury or damage made against you. It exists to protect other road users, ensuring they can receive a payout to cover their damages and compensation costs.
  • Third-party fire & theft. The second level of cover also covers the costs of all claims of damage or injury to third parties, including legal fees and compensation payouts, as well as the cost of any damage to your vehicle in the cases of fire and theft, including attempted theft, lightning, self-ignition and explosion.
  • Comprehensive cover. The most extensive level of coverage available is comprehensive cover, which can pay out for all costs related to incidents in which your vehicle has involvement. It can protect your car as well as those of other people, paying out for repair work following a bump or scrape as well as accidental damage.

When choosing a level of coverage, consider your car’s exposure to the risks covered above. You must also take into account whether you could afford to shell out for the cost of repair work to your own vehicle if you opt for the lowest level of coverage. Comprehensive cover can offer peace of mind that you can fix your car if an accident happens.

How much does business car insurance cost?

When it comes to a quote for business car insurance, there’s no one-size-fits-all pricing strategy. The price you pay depends on the risk to the insurer. Each provider will use a range of factors to determine the cost of your business car insurance policy, including:

  • details of the person who will be driving the car, including age, driving experience and claims history
  • when and where you will drive the vehicle
  • how many business and social miles the vehicle will do
  • for what activities the car will be used.

How to reduce the cost of your business car insurance

Vehicle insurance of any kind is notoriously expensive. Using a car for business use can drive up the cost of your premiums significantly. However, insurers may be able to offer you cheaper deals if you can show evidence that you have mitigated your risk. Some steps you can take which might bring down your quotes:

  • Choose a vehicle carefully. When purchasing a car, consider one with a smaller engine and higher fuel efficiency. Insurers tend to group car models into categories based on their level of risk. High-risk groups typically include those with larger engines or sports cars capable of higher speeds. Low-risk categories, and thus the more affordable, tend to feature smaller cars with increased safety features.
  • Install extra security measures, such as steering locks, additional alarms of vehicle trackers.
  • Keep your vehicle somewhere safe. Invest in off-street parking: if possible, keep your car in a secure garage or a gated driveway overnight. Implementing extra security features can also bring your costs down, such as setting up CCTV and installing security lighting where you keep the vehicle overnight.
  • Choose to limit the mileage on your policy rather than opting for an open-ended mileage agreement. Bear in mind to agree on a realistic mileage limit with your insurer, as if you exceed it, you may invalidate your policy. You can usually find your mileage from previous years on your MOT certificates, which can help you provide an accurate estimation.
  • Opt for the right level of cover. One of the biggest faux-pas drivers make when taking out insurance is over-insuring themselves. Be sure to go through your policy with a fine-tooth comb, and eliminate any unnecessary features of cover.
  • Consider getting a black box. Telematics policies are a fantastic way for safe drivers to make savings on their premiums. With this kind of plan, also known as a pay-as-you-drive policy, your insurer typically installs a black box in your vehicle that monitors your behaviour, regularly adjusting the price of your premiums based on the way you drive. A black box can also more easily trace your car if it’s stolen, which can also bring down your costs.
  • Increase your excess. The more you pay out each time something goes wrong, the less you’ll have to pay monthly for your premiums. However, be sure to opt for an excess you can afford to ensure this is a viable option.
  • Pay upfront. Typically, paying your business car insurance annually works out up to 20% cheaper than paying in monthly instalments.

Finally, the best way to find a cheaper deal on your car insurance is to shop around. Policyholders who take out their policy mere days before they need cover are shown to spend up to 32% more on their insurance than those who are shopping several weeks in advance. Research the market thoroughly and take out quotes from multiple providers before you settle on a policy.

Who pays for business car insurance?

Typically, it’s the owner of the car who takes out the policy. However, if you’re employed and are using your private vehicle for matters related to your work, many companies will reimburse their staff for any business miles they clock, sometimes along with other expenses including parking fees and toll roads. The reimbursement per mile should be more than the cost of fuel to take into account the increased cost of insurance, as well as wear and tear caused by higher mileage.

The amount of reimbursement you receive may vary according to your employer. Currently (September 2020) the standard reimbursement rate is 45p per mile for the first 10,000 miles, in line with the HMRC guidelines on Mileage Allowance Payments (MAPs). Beyond 10,000 miles, the rate drops to 25p. For example, if you travelled 13,000 business miles in your car, you would typically receive £5,250 in reimbursement (10,000 x 45p + 3,000 x 25p).

If you’re self-employed, HMRC typically considers your business car insurance an allowable business expense, on which you can claim tax relief in your self-assessment tax return. HMRC may ask to see evidence of these expenses, so be sure to keep a record of every business-related driving expense you incur.

How to find a business car insurance provider

Before you begin your search, it’s essential to define the features you are looking for in a policy, including the class of coverage you require as well as any extra features you may need, such as driving abroad. Once you know what you’re looking for, you can set about finding the best provider for you, using one of the three following methods.

Approaching insurers directly

A simple way to find policies is to seek out products directly from insurance suppliers. There are many specialist car insurance providers on the market, who have experience insuring vehicles for a range of purposes. Alternatively, many commercial insurance providers offer cover for vehicles used in conjunction with work-related activities.

You can start your search on the internet, where most suppliers offer details of their insurance solutions on their website, complete with cover features, benefits and exclusions. Many websites allow you to generate a quote online, or you can phone them directly for advice on a policy.

Finding a supplier through a broker

Researching the insurance market can be a daunting prospect, with hundreds of providers offering seemingly similar policies. Brokers can be a helpful way to find appropriate solutions from trusted insurers. They also provide the added benefit of industry experience and expertise, allowing them to advise you on a suitable level of coverage. Not only can they provide invaluable counsel on choosing a policy, but many brokers receive exclusive access to cheaper deals and extra cover features, compared to the general public. By going through a broker, you may be able to find a better deal at a more competitive price.

Using comparison websites

If you’re unsure where to start, a DIY method of scanning the market is to use a comparison website. These sites can offer an overview of the market by compiling multiple insurance products from various suppliers in an easy-to-use list. You can usually restrict your search results to only display products with particular features, or to filter the results according to coverage or price.

What do I need to get a quote?

Usually, you can generate a quote online or over the phone in just a matter of minutes if you have the right information to hand. To speed the process along, gather the following information:

  • personal details, including your claims history
  • details of any additional drivers you want to insure on the policy
  • your driving license number
  • years of no-claims-bonus
  • details of your car, including registration plate, make and model
  • details of any additional modifications made to your vehicles, such as spoilers or exhausts
  • your estimated annual business and social mileage.

Final thoughts & FAQs

When you’re using your car for work, the likelihood is that you’re spending more time on the road than the average car-user. Added to other factors, such as regular driving at peak times and driving in unfamiliar places, and your level of risk goes beyond the scope of an ordinary car insurance policy. Business car insurance can account for these additional risks and ensure you get the compensation you deserve following an accident, keeping your wheels in motion whatever comes your way.

Still have questions on business car insurance? Check out answers to common related queries, below.

Can I take out temporary business car insurance?

There may be the odd occasion where you want to take your car into work, for a one-off midday meeting at another site or an annual training day. Alternatively, you may borrow a different vehicle for a few working days. Temporary business car insurance can cover:

  • borrowing a car for work on a day-by-day basis
  • borrowing a colleague’s car to visit clients or other business premises
  • travelling to training days or conferences away from your usual place of work
  • sharing cars with employees, such as splitting up the driving for business trips
  • using a larger vehicle to transport large items or equipment
  • borrowing a car when your business car is in for repair.

In instances where you’re using your car, most insurers can offer a temporary business extension to your existing policy, saving you the need to fork out for expensive business car insurance. In the case of using a different vehicle, you can take out a standalone temporary business car insurance policy to ensure you have cover for these events.

Can my business car insurance cover my partner?

Some insurers can also cover your spouse on your business car insurance, without having any other named drivers on the policy. This can be the case whether you opt for a Class 1, 2 or 3 policy. However, not all insurers offer this feature, so be sure to check with your provider.

Do I need a business car policy if I do voluntary work?

Typically, insurance for vehicles used for voluntary work functions in a similar way to using cars for business use. Therefore, if you only use your car to commute to and from one place of voluntary work, this is usually covered by an ordinary social, domestic and commuting policy. If you travel to multiple places of voluntary work or drive as part of your volunteer role, you may need business coverage. Contact an insurance consultant or broker for advice.