When you operate a consulting business, you are exposed to many potential risks, and there is a wide range of insurance options available to protect you. For small and midsize companies, it can be confusing and expensive to research and purchase multiple policies. To simplify insurance coverage, insurers may offer a Business Owner’s Policy option for smaller businesses. These policies combine several insurance coverages into one convenient package, providing protection from common liability and property loss risks that most companies share. For smaller companies, this type of policy can help avoid coverage gaps, and it’s typically more cost-effective than purchasing multiple insurance policies. If you own a small or medium-sized consulting firm, purchasing a Business Owner’s Policy could be a simple way to give you confidence that your company will be protected in the event of an emergency, allowing you to focus on building your business.

What is a Business Owner’s Policy for consultants?

A Business Owner’s Policy (BOP) combines several common types of insurance into one package designed for small and midsize businesses. Most BOPs include general liability, commercial property, business income, and extra expense coverage, and depending on the insurer, it may be possible to customize your BOP to add additional coverage based on your company’s individual requirements. Since BOP premiums are typically less expensive than buying each type of insurance individually, a Business Owner’s Policy can help smaller consulting businesses reduce costs.

Example:

• Due to an overloaded electrical circuit, a fire breaks out in your management consulting firm’s offices. The fire ends up destroying most of your office equipment, including furniture, computers, and artwork. Your office building also suffers fire and smoke damage, and it will need repair before your firm is able to resume operations. The property coverage of your BOP would provide funds to repair and replace the damaged equipment at your office, and the business income portion of your BOP would compensate you for your business’s loss in income while your offices are being repaired.

What does a Business Owner’s Policy for consultants cover?

Business Owner’s Policies are generally packaged for businesses that are exposed to similar risks. A Business Owner’s Policy for consultants will typically cover three types of risks: claims of third-party injury or property damage, damage to your business property, and business interruption losses and extra expenses caused by damage to your property.

General Liability Coverage

General liability coverage protects your business from claims of third-party property damage, bodily injury, personal injury, and advertising injury. If you or your employees inflict unintentional harm to a third party, whether it is a slip-and-fall accident on your property or accidentally damaging a client’s property at their place of business, general liability coverage can provide financial protection if your business is sued. General liability insurance can also help you avoid lawsuits by providing no-fault medical payment coverage if someone is injured on your property. In addition, it covers personal and advertising injuries such as libel, slander, and copyright infringement.

Examples:

• While visiting your IT consulting firm’s offices to discuss a project, one of your clients trips on uneven pavement in your parking lot and falls, fracturing an ankle. Your insurer will pay for medical costs and cover legal fees if the client decides to sue you.
• An online ad for your financial consulting firm’s services uses imagery that looks very similar to a professional illustrator’s designs. The illustrator sues you for copyright infringement. Your insurer would pay for your legal defense and any settlements.

Commercial Property Coverage

Commercial property coverage protects the value of your business’s physical assets from common risks such as fire, storm damage, theft, vandalism, and other covered perils. If an unexpected disaster or accident occurs and your company’s property is destroyed or damaged, your insurance can cover the cost of repairs or replacement. For consultants, physical property that is usually covered includes office buildings, furniture, and computer equipment. For those smaller consulting firms or independent consultants who work from home offices, commercial property coverage can provide protection for business property that resides in your home. Keep in mind that homeowners insurance typically excludes business property.

Example:

• Someone breaks into your HR consulting firm’s offices over the weekend and steals desktop computers and monitors valued at $20,000. Your insurance company will reimburse you for the loss and pay for the replacement of windows that were broken during the break-in.

Business Income Coverage

If your company is unable to operate because of physically damaged or lost property, business income insurance will provide coverage for lost business income. The property damage causing the business interruption must be a result of a covered peril. Business income coverage can not only provide compensation for lost income, but it can also cover operating expenses, such as utilities, rent, payroll, or loan payments, that must be paid even if your business is temporarily shuttered.

Example:

• A leaky fire sprinkler system floods your cybersecurity consulting firm’s office, damaging computers, servers, and flooring. Your company must vacate the premises while repairs are made and employees are unable to access important data, which delays several key projects. 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 can provide the funds your business may need in order to avoid shutting down while you recover from property damage. In some cases, you can avoid or minimize business closures by renting replacement equipment or moving to a new location while repairs are completed. Extra expense coverage can reimburse your business for necessary business expenses that are not covered by business income insurance, such as rent for a temporary business space, rental equipment, and costs to relocate.

Example:

• A severe hailstorm damages your market research consulting business’s roof. It’s necessary to place a temporary covering on the roof to prevent further damage until it can be repaired. Your insurer would reimburse you for this cost.

Who needs a Business Owner’s Policy?

Business Owner’s Policies are designed for small and midsize businesses. There are a number of factors that determine whether a business is eligible for a BOP, including 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)

What doesn’t a Business Owner’s Policy cover?

A Business Owner’s Policy conveniently packages several types of insurance, but it’s important to note that it does not provide coverage for a number of common liabilities. A standard BOP primarily covers 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:

• Worker’s compensation
• Commercial auto insurance
• Errors and omissions insurance
• Cyber liability insurance
• Health, life, and disability coverage for employees

What coverage can be added to a Business Owner’s Policy?

In many cases, BOPs are customized to fit the needs of your business through endorsements, which can expand your policy to include additional types of coverage. What type of coverage can be added by endorsement varies based on the insurer. These types of coverage could be particularly relevant to consulting firms:

• Errors and omissions coverage protects your business from damages and lawsuits brought by dissatisfied clients claiming failures, poor performance, or negligence in your consulting services.
• Cyber liability or data breach insurance protects your company from first-party losses and third-party liability that result from hacking, data breaches, or other similar cyberattacks.
• Employment practices liability coverage protects your company if current, former, or prospective employees sue you with allegations of wrongful treatment.

What are the limits of insurance for a Business Owner’s Policy?

A BOP typically has a separate limit of insurance for each type of coverage the policy provides. This means that there are individual limits of insurance 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 $1 million per occurrence and $5 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 $300,000.

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.

Do Business Owner’s Policies have deductibles?

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.

Though not considered a deductible, there is usually a waiting period of 72 hours on the business income coverage portion of a BOP before coverage kicks in. During this period of time, no business income losses would be covered.

What perils does a Business Owner’s Policy cover?

When you select a Business Owner’s Policy, you can choose between 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. Causes of loss not listed in the insurance policy will not be covered.

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 more potential causes of loss, these policies have higher premiums than named perils policies.

Final Word

If you own a small or midsize consulting business, a BOP could be a great choice to protect your company’s assets. 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. This type of policy can also help you save money on premiums because it is typically cheaper than the cost of buying several individual insurance policies to achieve the same amount of coverage.