A Business Owner’s Policy bundles liability and property coverages for small businesses.
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When you operate a cleaning services business, you are exposed to many risks. To simplify the confusing process of selecting insurance, many insurance companies offer a Business Owner’s Policy for smaller companies, combining a number of common insurance coverages into one convenient package.
Designed for small and midsize companies, a Business Owner’s Policy (BOP) is a type of insurance that combines a number of common types of insurance into a single package. BOPs typically include general liability, commercial property, business income, and extra expense coverage. Many insurers will also allow you to customize your BOP, adding additional coverage tailored to your company’s individual requirements. Purchasing this type of policy can help smaller cleaning services companies reduce costs since it’s typically less expensive t0o purchase a BOP than it is to achieve the same level of coverage with individual policies.
- Your carpet cleaning company’s equipment malfunctions and sprays cleaning solution onto an expensive painting belonging to your client, damaging it. The general liability portion of your BOP would cover the damages.
A Business Owner’s Policy typically provides three basic areas of coverage: general liability coverage for third-party injury or property damage, commercial property coverage for first-party property damage, and business income and extra expense coverage for financial assistance during a business interruption.
General Liability Coverage
General liability coverage protects your business if it is sued for third-party bodily injury, property damage, personal injury, or advertising injury. This is a key coverage for cleaning services companies since they regularly perform work at other people’s homes, offices, and other locations. If one of your employees accidentally damages someone else’s property, or if someone is injured in the course of your work, general liability coverage will provide financial protection. This aspect of insurance can also help you avoid lawsuits by providing medical payment coverage if someone is injured on your property, regardless of who is at fault. In addition, it covers cases of libel, slander, copyright infringement, and other personal and advertising injuries.
- One of your house cleaning service’s employees accidentally knocks over and destroys a valuable vase at a client’s home. Your general liability coverage would pay for the loss.
- A client visits your offices for a scheduled meeting regarding a janitorial contract. As the client enters your office building, he trips on a loose piece of carpet, injuring his hip. General liability insurance would cover medical expenses and any damages if he sues.
Commercial Property Coverage
Commercial property coverage protects the value of your business’s offices and physical property. It covers common risks such as fire, storm damage, or vandalism. If your company’s property is destroyed or damaged, your insurance will reimburse you for the cost of repairs or replacement. Coverage includes your company’s building and its contents, such as computers, equipment, furniture, and tools.
- During a storm, high winds cause a tree to collapse onto your pool cleaning company’s office building, damaging the roof. The property portion of your BOP would cover repairs.
Business Income Coverage
If your company must temporarily cease operations because of damage to your property, business income insurance can compensate you for lost business income while your business undergoes repairs. The property damage that leads to the business interruption must be directly caused by a peril covered by your policy. In addition to paying for lost revenue, your insurer can also cover fixed operating expenses like rent and payroll that must still be paid while your business is closed. Business income coverage is especially important if your cleaning business depends on a physical location or retail space, or if you have specialized cleaning equipment that is difficult to replace.
- The fire sprinkler system in your cleaning company’s building leaks, flooding your offices and damaging your cleaning equipment. Your specialized industrial carpet extractors, floor scrubbers, and waxers are all damaged and unusable, and acquiring this equipment has a long lead time. Your business will need to shut down temporarily while your offices are repaired and new equipment is purchased. Your insurer would reimburse you for lost income, rent, and other operating expenses until the damaged property has been repaired or replaced.
Extra Expense Coverage
Extra expense coverage provides financial support to help your business continue operating after property damage or destruction. After a disaster, you may be able to continue operating your business by renting replacement equipment or moving to a new location while repairs are completed. Extra expense coverage will compensate you for additional expenses beyond your normal day-to-day operating costs, such as rent for a temporary business space, rental equipment, and costs to relocate.
- A fire breaks out at your office complex, resulting in structural damage to your office building. While the building is being repaired, you move your cleaning business to a temporary office location. Your insurer would pay for the cost to rent the temporary location and any necessary equipment to continue operating.
Business Owner’s Policies can be a beneficial choice for small and midsize businesses, though not all businesses may be able to qualify for a BOP. Factors that affect whether a business is eligible include the type of business, size of its location, number of employees, and revenue. Businesses that are eligible for BOPs usually fit the following criteria:
- Own or lease a physical business location or office
- Conduct business primarily at your business location
- Employ fewer than 100 people
- Make less than $5 million in sales (the exact sales numbers required to qualify may vary depending on the insurer)
Although a Business Owner’s Policy conveniently packages several types of insurance, it does not provide coverage for every common source of liability. Most standard BOPs cover only general liability, commercial property, business income, and extra expense coverage. Other insurance types for which you may need separate coverage or added endorsements include:
Many insurers will help you customize your BOP to accommodate your individual needs by adding endorsements that provide other types of coverage. For businesses in the cleaning services industry, these types of coverage could be especially relevant:
- Voluntary property damage provides coverage for unintentional damage to others’ property while that property is under your care, custody, or control. Since the property that you are engaged in cleaning may be considered to be under your care, this is an important coverage for cleaning companies.
- Inland marine coverage protects your property that does not remain at a fixed location and is not covered by your commercial property policy, such as specialized, high-value cleaning equipment that employees use at various work locations.
- Cyber liability or data breach insurance protects your company from losses that result from hacking or data breaches.
- Employment practices liability protects your company against claims of wrongful treatment from current, former, or prospective employees.
Limits of Insurance
A BOP typically has individual limits of insurance for each type of coverage it provides, which means that there are separate limits for the liability, property, business income, and extra expense portions of the policy.
General liability limits are typically divided into per year and per occurrence maximums. Your policy will list a maximum amount your insurer will pay for each individual incident, plus a maximum amount that your insurer will pay for all incidents over an entire year. For example, your policy might have a limit of $500,000 per occurrence and $2 million per year.
Property coverage limits are the value of your insured property. It’s common for policies to list the value of your building and all other property separately. For example, your company could have a building valued at $400,000 and other property valued at $200,000.
Business income limits typically include a “period of restoration,” which is the time it would take for your business to get back up and running. Loss of income payments are generally capped at 12 months after direct physical loss or damage, and expenses like payroll are capped at 60 days.
Extra expense limits are also restricted by the “period of restoration.” The insurer will generally only provide payment for expenses that occur within 12 months after the direct physical loss or damage.
Typically, only the property coverage portion of a BOP includes a deductible. This is a portion of the cost that you must pay for a loss before the insurer begins coverage. Lower deductibles result in higher premiums.
Although it’s not a deductible, the business income coverage portion of a BOP does require you to pay a portion of the loss by requiring a waiting period of 72 hours before coverage begins. During this period of time, no business income losses would be covered.
Named vs. Open Perils
When you choose a Business Owner’s Policy, you can decide whether you want open perils or named perils coverage for the property, business income, and extra expense portions of your policy.
Named perils policies list specific perils that are covered, such as fire, explosion, wind, storms, theft, and vandalism. These policies will not cover any causes of loss that are not specified in the insurance contract.
Open perils policies provide coverage for any cause of loss except for specific exclusions that are listed in the contract. Common exclusions include flood, earthquakes, rust or corrosion, mechanical breakdowns, animal or insect infestations, government actions, and war or nuclear hazard.
Because open perils policies cover a greater number of potential causes of loss, premiums for this type of policy are typically more expensive than named perils policies.
A Business Owner’s Policy could be a great choice for small or midsize cleaning companies that want to achieve a wide range of insurance coverage without paying unmanageable premium costs. For companies with relatively lower income and fewer employees, this type of policy conveniently bundles several common coverages together, making it easier to ensure that your company has a wide range of coverage to protect it from common risks.