Does Being Self-Employed Affect Car Insurance?

Car insurance is an important way of safeguarding the value of your vehicle. It also protects you from financial liability if you cause an accident. The cost of car insurance depends on your driving record, the type of car you own and other factors. Being self-employed can drive auto insurance rates higher or lower, depending on your individual situation.

Reducing Your Commute

One of the major factors that auto insurance companies use to determine your rates is how much you drive each month or each year. More time on the road means a higher likelihood of an accident. If becoming self-employed changes you from a commuter to a work-at-home employee, the driving you do each day will go down, and so will your auto insurance rates. You may be able to change the status of your vehicle from "commuting" to "pleasure" if you only drive it on weekends or to run personal errands.

Driving for Business

Conversely, your annual mileage, and car insurance rates, can go up if you're self-employed. This will happen if you need to use your personal vehicle for business purposes. To make sure you're covered at all times, you'll need a more costly commercial or company car policy. This will cover you through the name of your self-employment business, even when you use the car for personal use. It will also extend coverage to others who work for you and use the car for business purposes.

Losing Group Insurance

If your employer sponsors a group auto insurance policy as a benefit of employment, you will not be able to remain on the same policy if you transition to self-employment. Group insurance saves money by distributing risk over a large number of drivers, so expect your rates to increase as soon as you lose access to the group insurance.

Accounting for Insurance

The cost of car insurance rate increases that come from self-employment can be mitigated by tax savings. The money you pay for insurance on a car for your business is a deductible business expense. It will offset money you make through your business and reduce your total income tax liability. Other deductible expenses include auto maintenance and repairs, all of which need to be accounted for in your self-employment tax filings.