It combines the major property and liability risks that small businesses face into one convenient package. It also helps you save money, with lower premiums than buying the individual coverages separately.
The BOP includes liability, property, and business income insurance coverages.
- General Liability Insurance protects your business if it is sued for causing injury or harm to someone else in the course of your business operations. It can help protect your small business if a customer slips and is injured on your property, or if a fire starts at your business and damages a neighbor’s property. General liability insurance will pay for damages to third-parties as well as legal fees to defend your business in court.
- Commercial Property Insurance protects the value of your building and other property owned by your business from a variety of risks such as fire, wind, theft, and vandalism. If your building or property are damaged or destroyed by covered causes, the insurer will reimburse your company for the losses you suffer. Your business contents, which is your property not including buildings, such as equipment, tools, computers, and inventory generally must be stored within 100 feet of your business premises to be covered.
- Business Income and Extra Expense Insurance pays your business if it is unable to operate because of physical damage or loss to your business property from a covered cause of loss. This insurance compensates your business for lost profits, and will also pay for your fixed operating expenses like rent and payroll while your business is closed. It also pays for extra expenses you may incur in order to get back into business sooner, like renting a temporary location or hiring movers to move your inventory.
Business income insurance can help you get back into business by ensuring that you can meet your financial obligations while rebuilding your business. With a BOP, business income insurance usually has a 12 month maximum recovery period for your business to reopen.
Who needs a Business Owner’s Policy?
Many kinds of small businesses qualify for a Business Owner’s Policy. In order to qualify for a BOP, your business should meet the following requirements:
- Not a home-based business.
- Most of your business is conducted on your business premises.
- Not in a high-risk industry.
- Less than 100 employees.
- Less than $5-$10 million in sales. Different insurance companies have varying sales thresholds to qualify for a BOP, so discuss this with your insurer or agent.
If your business is too large or complex for a Business Owner’s Policy, you may want to purchase a Commercial Package Policy.
Below are some types of businesses appropriate for a business owner’s policy. Other types of businesses may also qualify.
- Retail stores (selling either goods or services)
- Office Buildings
- Apartment buildings
- Religious organizations
- Business or technology consultants
- Architecture & Engineering
For the property and business income components of the Business Owner’s Policy, you have a choice between named perils or open perils coverage.
Named perils are specific causes of loss listed in the insurance contract. Common named perils include fire, lightning, explosion, theft, vandalism, wind, and burst pipe. Perils not listed in the insurance policy will not be covered.
Open perils coverage will cover physical loss or damage from any cause except for exclusions specifically listed in the insurance policy. Common exclusions from an open perils policy which are not covered include animal or insect infestations, fungus or mold, losses due to governmental actions, rust or corrosion, sewer backups, and mechanical breakdowns.
Because open perils covers more causes of loss than named perils, the premiums are higher for open perils coverage.
To read more about covered perils, please see our article on Property Insurance.
What doesn’t a Business Owner’s Policy Cover?
Although a Business Owner’s Policy is a convenient option that covers common insurance needs for your small business, there are additional insurance coverages that your company will need beyond the BOP. Types of insurance that a BOP does not cover include:
- Auto Insurance
- Professional Liability / Errors & Omissions
- Workers’ Compensation Insurance
- Health Insurance
- Disability Insurance
- Liquor Liability
Limits of Insurance
The different components of a Business Owner’s Policy have different limits of insurance. Each of the three areas of liability, property and business income insurance have their own individual limits.
The general liability limit is often separated into “per occurrence” and “per year” limits. “Per occurrence” limits apply to each individual loss throughout the year, and “per year” limits cap the total amount the insurance company will pay for all combined losses during the policy year.
For property insurance, the limit is the value of all the property that your business owns and wants to insure. The building’s value and your business’ other property would generally be listed separately. It is important to provide the insurance company with an accurate estimate of the value of your property to avoid underinsurance. It is common for a BOP to have a coinsurance clause, which will reduce the claim payment to your company if your property insurance limit is too far below the actual value of your property.
Business income insurance has its own limit, which should be the net profits of your company plus any fixed expenses over the amount of time your business would need to reopen after an accident or disaster.
For example, a business may have the following limits of insurance:
- Liability: $2 million per occurrence / $4 million per year
- Property: $300,000 building / $500,000 business personal property
- Business Income: $2 million
A deductible is the amount of a loss for which your company is responsible before the insurance company’s coverage begins. For example, if you have a deductible of $250 and your company experiences a loss of $1000, the insurance company will pay for $750 of the loss, which is the loss amount minus the deductible.
The liability component of a Business Owner’s Plan usually doesn’t have a deductible. This means the insurer will pay any losses or legal fees up to the limit of insurance without expecting any financial contributions from your business.
Property insurance in a BOP usually has a deductible that you can choose. The higher the deductible, the lower your insurance premium.
The business income insurance portion of a BOP does not have a deductible, but it does usually have a waiting period of 72 hours (although different plans may have waiting periods of 24 or 48 hours). This waiting period begins when a loss occurs. The insurance company will not pay for any losses to business income incurred during this waiting period.
Can a Business Owner’s Policy be customized?
Even though a Business Owner’s Policy is a package policy, it can be customized for the unique needs of your business. Many different additions (called endorsements) can be attached to your BOP to provide your business with comprehensive coverage to address your business needs. Some endorsements you can add include:
- Professional Liability / Errors & Omissions
- Data Breach or Data Loss
- Mechanical Breakdown
- Spoiled Merchandise
- Employment Practices Liability
- Personal Property of Others (Bailee’s Coverage)
- Commercial Crime Insurance
Applying for a BOP
An insurance company will want specific information from your business in order to apply for a Business Owner’s Policy.
Common information that insurers will collect include:
- Basic information on your business such as the type of business, and level of sales.
- Information on building construction such as age of the building and roof, building materials used, and square footage.
- Employee information, such as number of part-time and full-time staff and payroll information.
- Prior claims that your company has made on past insurance policies.