What Is Business Owner’s Policy Insurance?
A Business Owner’s Policy (BOP) helps business owners easily manage business risk. It is a cost-effective means of protection for small businesses because the premium for a BOP policy is less than the total cost of the individual policies. Shopping for a BOP means you'll just need one policy to cover the three main types of coverage: property, general liability and business interruption.
Property protection coverage
Property can be damaged or destroyed in a variety of ways, leaving businesses vulnerable to significant financial loss without properly insuring their assets. Property insurance protects businesses against damage to buildings and the contents inside buildings, as well as property of others. Buildings include such things as structures, permanent fixtures, machinery and equipment and appliances.
Building contents include items like computer equipment, inventory, raw materials, and any leased property. Property of others includes items that belong to others that are temporarily in your care.
For example, if you are a vehicle repair shop, this would include any vehicle you are repairing.
Common property claims include those that threaten most any type of business such as theft or accidental damage from natural disasters, such as fire. However, other natural disasters, such as flood and earthquake, are not needed by all businesses and therefore are generally available through separate policies. The typical amount of annual coverage ranges from $10,000 to $50,000.
General liability coverage
Arguably the most basic protection for a business, General Liability covers business liability and medical expense coverage.
- Business liability refers to coverage for expenses associated with bodily injury, property damage, personal injury, or advertising injury. It protects businesses against financial loss should you or your employees be found liable for property damage not arising out of non-professional negligence. This includes the cost of repairing accidental damage to a third-party’s property. In addition, General Liability protects businesses against false or misleading advertising in the instance of libel, slander, copyright infringement, unlawful eviction, malicious prosecution, privacy violations and more. Some policies even provide coverage for contract liability protection.
- Medical liability pays for obligations, such as medical costs incurred if someone gets hurt on property that you own or rent. It also covers accidents as a direct result of your business operations. This includes the cost of legal defense and court fees from third-party lawsuits. Limitations include non-accidental bodily injury or damage and medical expenses for bodily injury covered by workers compensation or disability insurance.
Business interruption coverage
protects against the loss of income resulting from an event – such as a fire or theft – that impedes business operations. Depending on your policy, it also helps cover the costs associated with getting your business back up and running quickly after a disruptive event. This may include coverage for temporary relocation costs, equipment, and even staff.
Who should purchase a BOP?
A BOP is not for every business. One consideration is if you are a small business. To provide some perspective, the U.S. Small Business Administration (SBA) defines small business as 500 or more employees for most manufacturing industries and $7.5 million in annual revenue for most nonmanufacturing industries. The location of your business is a consideration.
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For example, if it is an online business, chances are a BOP is not for you. Conversely, a brick-and-mortar business – one with a physical location that serves customers – is a prime candidate. Another consideration is whether your business has assets that might be stolen or otherwise damaged.
Though many types of businesses will be eligible for a BOP, eligibility requirements preclude certain businesses. Factors that contribute to eligibility include the class of business, where business operations are conducted, business size, and revenue. Typical eligible classes include restaurants, apartments, retail stores, contractors, and service-based businesses with a physical location.
Depending on your business, you may want to include Data Breach and Professional Liability/Errors and Omission insurance in your BOP. In addition, you may need to add coverage specific to your business. For example, adding coverage for floods may be more appropriate for a business that operates in high risk flood regions. Insurance agents who are well-versed with the type of business you operate can help identify additional coverage needs.
You will need to purchase separate policies for Professional Liability Insurance, Auto Insurance, Worker’s Compensation, Health, and Disability Insurance since they are not covered under BOPs.