What is business car insurance and do you need it?

Updated on 27/10/2020

min reading

Not sure whether you need business car insurance? Please read this guide if you use your car during business hours, even for driving between offices. You’re probably already aware that taxi drivers and people using a car for their business need different cover. Did you know that even something as seemingly innocuous as driving to a training course requires an extra layer of protection though?

In this guide, we’re going to explore the complex world of business car insurance in detail. We’ll condense it down into bite-size chunks so you can be back on the road in no time. We’ll be navigating our way through questions such as:

What is business car insurance?
What does business car insurance cover?
What is the difference between Class 1 and Class 2 business insurance?

What is business car insurance?

Basically, business car insurance covers you if you use your own car for more than just commuting to the same office each day. You generally need to take out business car insurance if you use your car during the workday (for business purposes) for anything other than your daily commute.

There are different levels of business car insurance, depending on how often you use your car and how far you drive. Consider the different risks of someone racking up thousands of miles each week versus someone driving 10 minutes each way to work Monday to Friday.

If you think about it, the longer a vehicle is on the road and moving around, the more chances of a ding or a scrape. That’s why it’s so important to be as accurate as you can when getting a business car insurance quote. You don’t want to pay more for cover you don’t need or be underinsured, potentially rendering your insurance invalid.

If you have a company car through work, your company should have taken out company car insurance. You should check with your boss or Human Resources to make sure that you are covered and what you are covered for.

What does business car insurance cover?

Business car insurance will cover you for those trips you make in your own vehicle that are not just getting you from home (point A) to your regular office (point B). If you have multiple offices (e.g. points C and D too) and you drive between these, you will need to upgrade your standard car cover.

Here are some common scenarios where you would need to take out business car insurance:

Travelling between different offices or places of work.
Driving to the bank or post office on behalf of your company.
Regularly making client, supplier or patient visits.
Attending offsite events or training days.

That list is by no means exhaustive. The trick is to consider any activity that you do outside of getting from point A to B and back each day. If you’re not sure, pick up the phone to your current car insurer and confirm. It will only take a few minutes but could save you a lot of grief in the future.

If your provider says that you do need business car insurance and you’re not happy with your current insurer’s quote, shop around. There are so many great providers in the UK and the benefit is that it keeps the costs low with a little bout of friendly competition. You can always go back to your insurer and see if they’ll price match if you find something cheaper.

Great news, if you do need business car cover, it will also be valid for social, domestic and pleasure use.

What is the difference between Class 1 and Class 2 business insurance?

There can sometimes be confusion here, but there are some clear indicators to determine “what is the difference between Class 1 and Class 2 business insurance?”. There are actually three commonly used terms for labelling business car insurance. Class 1 and 2 are the most common but we will include a brief description of Class 3 below also.

There is no one standard definition of these categories so always clarify everything with a provider when you run a quote. Don’t skimp on divulging the number of miles you do, as a quick saving on the premium now could cost you more down the road.

Class 1 - Business use by you

This is the lightest level of business car cover and suitable if you’re just travelling between offices but not spending much time on the road. This is for the named driver only but some providers will allow your spouse on the policy.

Don’t be lending your car to a colleague though, no matter how many trips to the cafe they promise you. Even just a small ding would equal a lot of coffees!

Class 2 - Business use by all drivers

As the name suggests, this level of cover goes a step further than Class 1. With this insurance class, you can include additional named drivers on the same policy. Usually, the provider will stipulate that they work in the same business as you. Considering it’s business car insurance, you probably will anyway.

This realistically covers you and the other named drivers for driving between sites but not great distances. You cannot make deliveries or sales of any kind with this level of cover.

Class 3 - Commercial travelling

This insurance class will allow the same usage as Class 2 but with added freedom. It also covers the policyholder for unlimited miles or much higher allowance, and should not bind you to set destinations. This is typically used by salespeople who spend a lot of time on the road.

If you use your car for your job (e.g. taxi driver or delivery driver) you will need to look at commercial car insurance rather than business car insurance.

How much extra is business car insurance?

A billfold with notes in it, two piles of banknotes and several piles of coins

As we mentioned, there are obvious reasons that business car insurance costs more than standard car insurance. It’s estimated that on average business car users spend double the amount of time on the road, leaving more opportunity for error. If you’re driving to different and unfamiliar sites, insurers deem this as riskier too.

The cost you pay will be determined by the following criteria:

The age of the driver/s and length of time they have held a licence.
How many estimated miles the car will be travelling annually.
The number of sites visited and the purpose of travel.
Type of car being insured and which car insurance group it falls under. For more information on car insurance groups, read our detailed guide (coming soon).

How to cut costs but not cut corners

As with all car insurance policies, there are a number of ways you could keep your insurance premium down. There is no one size fits all method here. The most important point to remember is ensuring that the policy covers you so it’s never invalidated.

With that in mind, here are some options you can consider:

Try increasing your voluntary excess. This usually reduces your premium, just make sure the excess is at an acceptable limit for you, should you need to make a claim.
Fit an immobiliser, which will reduce the risk of theft and your premium.
If you don’t already have a factory fitted alarm, you could look at getting an alarm professionally fitted.
If your business has multiple vehicles you could qualify for fleet insurance, which is a great way to insure a group of cars, cheaper.
Consider a car with a small engine. Premiums tend to be lower plus it will be more economical and easier to park.
As with so many bills, paying upfront, rather than instalments, should lower the cost over the year. You just need the lump sum to start.

It’s common that a company will pay employees a set amount for miles they drive in their own car for business use. It is often compensated per mile and should cover fuel, wear and tear, and the business car insurance you will need too. Each employer is different though, so check with your boss or HR rep. Perhaps there was no need for you to drive when you started and all of a sudden you’re going up and down the country each week and not getting compensated. It’s always worth a conversation!

We hope you are clearer now on what constitutes the need for business car insurance. Just because you don’t run your own business doesn’t mean this isn’t for you. There are too many people driving around unaware that they aren’t covered by their standard car insurance for common business trips. Don’t let yourself be one of them.

All material on this page and the selectra.co.uk website is for information purposes only and does not constitute any form of financial advice. Selectra.co.uk is not responsible for any consequences that might arise from your use of the information provided.