An insurance requirement is the amount of coverage a company requires its employees to carry in order to be eligible for reimbursement. Insurance requirements are common on FAVR, accountable allowance, and cents per mile reimbursement programs.
When a company sets an insurance requirement, drivers are required to submit their insurance documentation periodically to confirm they hold the required level of coverage. This insurance verification process is usually handled by a reimbursement provider like Cardata, rather than by the company itself.
Some companies verify insurance once per year, but most require drivers to resubmit insurance whenever their existing policy expires.
Drivers that do not submit their insurance, submit insufficient insurance, or do not resubmit their insurance at expiry are deemed to be out of insurance compliance. When drivers are out of compliance, they are typically not reimbursed until they submit appropriate insurance.
The IRS also requires FAVR reimbursements to only be based on the amount of insurance coverage that drivers are required to carry. This is a separate concept called FAVR insurance compliance. Under this FAVR rule, drivers that do not hold the amount of coverage they are reimbursed for have their reimbursement tested for taxable income. However, since most companies choose to withhold reimbursement from drivers that are not in insurance compliance, this tax rule is usually moot.
Learn more about insurance within vehicle reimbursement programs, including the importance of ensuring that your employees have the right coverage.
If you’re wondering which vehicle reimbursement program is the best fit for your business or are looking for guidance on insurance compliance, consider speaking with a Cardata expert.