A Business Owner's Policy packages together common liability and property coverages for small businesses.
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For small and midsize IT companies, the range of insurance options available can be bewildering, and purchasing multiple policies to cover all potential risks can be expensive. To simplify insurance options for smaller companies, many insurance companies offer a Business Owner’s Policy. These policies combine several insurance coverages into one package, providing protection from common liability and property loss risks that most companies share. If you own a small or midsize IT business, a Business Owner’s Policy could be a simple way to give you peace of mind that your company is adequately covered in the event of an emergency.
What is a Business Owner’s Policy?
A Business Owner’s Policy (often known as a BOP) combines several common types of insurance into one package, providing a wide range of coverage. Usually, general liability, commercial property, business income, and extra expense coverage are included, and insurers typically tailor BOP offerings to specific industries like the IT industry. Premiums for BOPs are typically lower than the cost to buy each type of insurance individually, which can help smaller businesses save on costs. Depending on your insurer, you may be able to customize your Business Owner’s Policy to add additional coverage based on your company’s specific needs.
- Your IT consulting company’s fire sprinkler system develops a severe leak that destroys several of your computers and monitors. The property coverage of your BOP would provide funds to replace the damaged machines.
What does a Business Owner’s Policy cover?
A Business Owner’s Policy covers three common 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 if it is sued for third-party bodily injury or property damage. If a client or customer is injured while at your offices or a fire starts at your business and spreads to the neighboring offices, your insurance would cover damages, legal fees, and settlements. This aspect of insurance also provides no-fault medical payment coverage if someone is injured on your property, which allows you to avoid lawsuits. Personal and advertising injuries such as libel, slander, and copyright infringement are also covered.
- A client visits your SEO consulting firm’s offices for a meeting and is injured after tripping over an uneven entry mat. Your insurer will pay for medical costs and cover legal fees if the client decides to sue you.
- An electrical fire starts in the offices of your web design company. It spreads to the offices of the neighboring company. The general liability portion of your policy would pay for damage to your neighbor’s property.
Commercial Property Coverage
Commercial property coverage protects the value of your business’s offices and other 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, tools, and inventory.
- During a storm, high winds cause a tree to fall onto your software development company’s building, damaging its roof. The commercial property portion of your coverage would pay for repairs.
Business Income Coverage
Business income coverage compensates your business if it is unable to operate because of physical damage or loss of property. The business interruption must be caused by a peril covered by your policy. Your insurer will pay for lost profits and fixed operating expenses like rent and payroll while your business is closed. If your location is damaged by an unexpected disaster such as a fire, this coverage can help you recover.
- An electrical fire breaks out in your IT staffing agency’s offices, destroying computers and damaging the building. Business income coverage would reimburse you for your income and operating expenses until you can resume operations.
Extra Expense Coverage
Extra expense coverage compensates you for additional expenses you incur in order to keep your business operating after property damage or destruction. 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 help your business continue operating after a disaster by paying for expenses such as rent for a temporary business space, rental equipment, and costs to relocate.
- A windstorm causes major damage to your computer repair store’s roof. While the roof is being repaired, you move your business to a temporary location. Your insurer would pay for the cost to rent the temporary space and any necessary equipment to continue operating.
Who needs a Business Owner’s Policy?
Small and midsize IT businesses can benefit from BOPs. 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 with BOPs usually fit the following criteria:
- Own or lease a physical business location or office
- Your business is conducted primarily on your business premises
- 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?
While a Business Owner’s Policy may be a convenient insurance package for a smaller business, be aware that it does not cover a number of common liabilities. A Business Owner’s Policy primarily covers only general liability, commercial property, business income, and extra expense coverage. Other insurance types that you may need separate coverage for include:
- Worker’s compensation
- Commercial auto insurance
- Professional liability
- Health, life, and disability coverage for employees
What coverage can be added to a Business Owner’s Policy?
BOPs can be customized to fit the needs of your business. Endorsements can be added to provide other types of coverage that your business may need. What type of coverage can be added by endorsement varies based on the insurer. Additional coverage that might be particularly relevant to businesses in the IT industry:
- Professional liability (also known as errors and omissions) protects your business from damages and lawsuits brought by dissatisfied clients.
- Cyber liability or data breach insurance protects your company from losses that result from hacking or data breaches.
- Personal property of others (bailee’s coverage) covers others’ property that is damaged while in your care, custody, or control. If your company frequently takes custody of others’ property in the course of your work (such as a computer repair business), you may need this coverage.
- Employment practices liability protects your company against employee claims of wrongful treatment.
What are the limits of insurance for a Business Owner’s Policy?
BOPs typically have separate limits of insurance for each area of coverage. 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 $3 million per year.
Property insurance 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 are typically bound by a “period of restoration,” or 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 bound by the “period of restoration,” with payments limited to only expenses that occur within 12 months after the direct physical loss or damage.
Do Business Owner’s Policies have deductibles?
The property portion of a BOP does typically include 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.
The liability, business income, and extra expense portions of a BOP do not have deductibles. It is important to note that business income coverage may have a waiting period before coverage begins. The insurer will not reimburse you for income lost during the waiting period. Waiting periods start when the loss occurs and usually last 72 hours but can vary depending on your insurer.
What perils does a Business Owner’s Policy cover?
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. 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 rust or corrosion, mechanical breakdowns, animal or insect infestations, government actions, war or nuclear hazard, and earthquakes.
Because open perils policies cover more potential causes of loss, these policies have higher premiums than named perils policies.
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.
In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer Business Owner’s Policies:
|Provider||Business Owner's Policy||General Liability||Commercial Property||Business Interruption|
If your IT business is small or midsize, a BOP could be a good way to protect your assets. For companies that have relatively low revenue and fewer employees, these policies conveniently group several important coverages together, making it easier to manage your insurance and feel confident that your business is protected from common risks. This type of policy can also save you money on premiums because it is typically cheaper than buying individual insurance policies to achieve the same amount of coverage.