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Difference Between Private and Commercial Car Insurance

By Vikas Chandra Das
21 July 2022, 11:46 AM

While researching different types of insurance policies, you may have come across these two terms - private car insurance and commercial car insurance. It’s important to understand what these terms mean, along with the types of insurances the insurer offers.

So, before you select the insurance, keep reading to learn everything you can about these two insurance types!

Difference Between Private and Commercial Car Insurance

To understand the difference between private and commercial insurance, you must first understand what private and commercial car insurance is?

A commercial vehicle is a car used for the purpose of plying passengers and employees and is different from a car bought for one’s own use as it involves financial gain through the use of the vehicle. 

A private car, on the other hand, is used to help you and your family to get from one place to the next. It is not used to generate any income. For example, A car that you have purchased to be used as a taxi would be a commercial vehicle. 

Private car insurance is used to help cover damages that may be incurred by a private car. On the other hand, commercial car insurance is used to help cover damages that may be incurred by a commercial car.

The motor insurance for a commercial vehicle will have a higher premium attached to it than a private car insurance policy by virtue of the risks associated with driving the former. The distinctions between these two kinds of insurance are highlighted as follows –

BasisPrivate car insuranceCommercial car insurance
DefinitionIt is an insurance cover that protects the insured from financial losses that are incurred as a result of theft, fire, accident, and natural calamities.It is an insurance policy that protects the owner of the commercial vehicle from liabilities or costs that arise out of accidents, theft, etc.
CoverageThe policyholder in case of an accident, theft, etc. is covered.The hired drivers and passengers are covered.
PurposeDe-risking of personal injuries and losses due to damage caused to the car.De-risking the business of the policyholder from liabilities arising out of an accident.
RiskComparatively lesser.Higher simply due to the fact that it is on the road for a longer period and is more vulnerable to accidents due to this.
PremiumLesser than the premium for commercial car insurance.A higher premium will be charged.
Liability limitsComparatively lower.The liability limit is higher since the insurer offers financial protection against legal challenges that the policyholder might incur due to the accident.
Mandatory cover offeredFor third-party liability.For third-party liability and driver and passenger cover.
Claim process in case of an accidentFIR is mandatory and spot inspection will be done by the surveyor of the insurance company.FIR is not mandatory.
Towing Disabled Car CoverDoesn’t exist for this policy.Any damage/ loss incurred by the car of the insured while being towed to the garage will be covered.

This is solely dependent on the use that the policyholder will put the car too. If the car is being used to drive clients/employees, transport passengers for a fee, or for transport of goods or equipment, then a commercial car insurance policy must be opted for by the owner. However, if the car is driven around for personal use, then a personal/private car insurance policy would suffice.

Also, legal requirements are such that a car cannot be used for commercial purposes if a private car insurance policy is purchased for the same.

Can Private Insurance be Converted into a Commercial one?

This is permitted if the private car gets registered as a commercial car in the RTO’s office. Additional fees for FC and permit must be paid. The number plate will also be changed.

Can Commercial Insurance be Converted into a Private one?

This is permitted only if the commercial vehicle is registered as a private car. A commercial car can be converted to a private car by paying requisite fees at the RTO and following the guidelines outlined by the transport department. The vehicle permit must be surrendered, and one must receive a Tax Clearance Certificate, a No Objection Certificate, and a No Challan Report. Once this is all done, the car insurance company is to be intimated about the same and due procedure must be followed thereafter.

Are These Insurances Valid If I Move from One State to Another?

Yes. However, it is advisable to revisit the terms of the policy and see if the cover needs to be modified or enhanced. A new policy to suit one’s changing needs can also be opted into.

As you can see, one must exercise caution while purchasing their policy cover for the car in order to minimise liabilities and losses. As insurance cover is a strong shield that offers protection from unforeseen incidents, choosing the correct one is of vital importance. After all, you don’t want your claim to be rejected just because you got the wrong insurance!

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