The Business Owner’s Policy (BOP) is a package of several common types of insurance for small businesses.
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Small and midsize businesses share very similar risks and exposures. Because of this, many insurers offer a Business Owner’s Policy, which packages together common insurance coverages most suited for smaller businesses.
A Business Owner’s Policy (BOP) 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. Specifically, these include:
- 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, artwork, furniture, and inventory generally must be stored within 100 feet of your business premises to be covered.
- Business income insurance (also known as business interruption insurance) and extra expense coverage pay 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 it 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.
A Business Owner’s Policy covers many of the risks that all businesses share and the coverage it provides is relevant for almost every organization. However, not all companies may qualify for a Business Owner’s Policy, as it is a package specifically designed for smaller businesses. If your business has the following characteristics, you may be a good candidate for a BOP:
- Has a physical location, which may be home-based or outside of the home
- Most of your business is conducted on your business premises
- Has fewer than 100 employees
- Makes less than $5-$10 million in sales (this figure may vary depending on the insurer)
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
- Architects and engineers
A Business Owner’s Policy provides general liability, commercial property, business income, and extra expense coverage.
General liability insurance covers three categories of damage: property damage, bodily injury, and personal and advertising injury. Under general liability, your insurer will cover the costs of any legal defense or attorney’s fees incurred while defending against covered lawsuits, as well as any medical payments. In the event that your business is sued because of an accident, general liability can help provide financial backing to help reduce the financial strain on your business.
Commercial property insurance helps protect the value of the physical assets your business owns. If an unforeseen accident or natural disaster hits your business, having property insurance can help your business recover. In the event of a covered incident, the insurer will pay you for the value of the lost or damaged property.
Business income insurance provides coverage for loss of income and operating expenses if your business must temporarily close due to property damage. Also known as business interruption insurance, business income insurance will provide funds to address your lost income or revenue while your business is recovering from the damage that was directly caused by a covered peril.
Extra expense coverage covers extra expenses to keep your business running after an accident or disaster. It is valuable for businesses that need to operate right away after a disaster, or who can move to a temporary location to avoid a shutdown. Extra expenses coverage will cover anything beyond your normal day-to-day operating costs. This means anything above and beyond repairing your business’s physical property that you would not have incurred without the incident that damaged your business’s property, during the period of restoration.
Named vs. Open Perils
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 that 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 policies cover more causes of loss than named perils policies, the premiums are higher for open perils coverage.
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:
- Commercial Auto Insurance
- Professional Liability / Errors & Omissions
- Workers’ Compensation Insurance
- Group Health Insurance
- Group Disability Insurance
A Business Owner’s Policy can, however, be customized for the unique needs of your business. Many different additions, or 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
- Bailee’s Coverage
- Commercial Crime Insurance
The different components of a Business Owner’s Policy have different limits of insurance. Each of the areas of liability, property, and business income insurance have their own individual limits.
General liability limits are 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 example, you may have a limit of $2 million per occurrence / $4 million per year.
Property insurance limits are the value of all the property that your business owns and wants to insure. The building’s value and your business’s 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. For example, you may have a limit of $300,000 building / $500,000 business personal 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.
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.
The premiums on a Business Owner’s Policy vary depending on a number of factors. Though prices can range between a few hundred dollars to a few thousand dollars a year, much of the final pricing will depend on your company’s risk to insure. When you apply for a BOP, an insurance company will want specific information from your business, including:
- Basic information on your business such as the type of business, and level of sales
- Information on your business property such as the age of your building and roof, building materials used, and square footage
- Security features of your property, such as alarm systems, fire sprinklers, and location
- Employee information, such as the number of part-time and full-time staff and payroll information
- Prior claims that your company has made on past insurance policies
Many small businesses can end up paying as little as a few hundred dollars per year for a BOP. However, even if your pricing ends up being closer to a few thousand dollars, keep in mind that you are most likely benefiting from significant savings over purchasing each of the liability and property insurance policies separately. Also, remember that not everyone can qualify for a Business Owner’s Policy. Your business will need to meet certain requirements, including maximum sales levels and employee counts, in order to take advantage of this type of policy, which is mainly geared for small businesses.
If you own a small or midsize business, a Business Owner’s Policy can be a great option for your company, providing you with a broad range of common coverages, while saving you money on premiums. For companies with relatively lower income and fewer employees, this type of policy conveniently bundles general liability, commercial property, business income, and extra expense coverage into one convenient product.