Business Owner’s Policy
A Business Owner's Policy (BOP) incorporates commercial property and general liability insurance coverage into one policy. Business owners’ policies generally cost less than purchasing two separate policies.
Business owner's insurance helps cover your company in the event of general liability resulting from third-party claims or lawsuits resulting from bodily injury or property damage caused by your business. Additionally, it handles occurrences related to advertising and personal injury that your business may face.
Businesses can customize their Business Owner's Policy (BOP) to cover their unique needs by adding optional coverages, such as:
- Employee Dishonesty
- Theft of money or securities
- Cyber (though a specific policy is recommended)
- Building and Ordinance
A BOP policy can be tailored for industry-specific businesses, meaning it's terrific for small businesses. The industry your business is in must be an eligible class of business, higher risk operations are not usually acceptable for a BOP.
A business’s income can be protected by utilizing the BOP policy. Sometimes a BOP automatically includes coverage for loss of business income that is caused by direct physical loss to a building by a covered peril. It is essential for small business owners to properly customize their coverage as they set up their operations to respond to potential losses and damage down the line.
Decoding a Business Owner’s Policy (BOP) Insurance
Having a small business is no cake walk. Among several business management functions like planning, organizing, staffing and directing, a business owner is also responsible for the holistic protection of the organization. A Business Owner’s Policy (BOP) is the ideal insurance for small business owners. You can obtain comprehensive coverage of general liability and commercial property at a bundled rate.
Small businesses can incur unexpected financial losses which are ultimately deducted from the business’s bottom line. A BOP joins various insurance lines for small businesses and creates a package perfectly suited to their business type. The BOP insurance typically includes protection against third party liabilities such as client injury or property damage and coverage for commercial property such as office furniture and equipment used for business purposes.
It is imperative for the business owner to be aware of the inclusions and exclusions of the BOP policy.
The property insurance of standard BOPs only cover the damage caused by certain perils like fire, explosions, wind damage, vandalism, and smoke damage while the special form BOPs offer coverage for all risks other than what is specifically excluded. Therefore, it is important to read the exclusions even if that is the only part of the policy that you actually read! The liability coverage provides defense for claims or lawsuits resulting from bodily injury or property damage resulting from your business operations. There are also exclusions under the liability section that should be reviewed.
A standard form BOP does not provide coverage for theft. On the liability side, a BOP also excludes coverage for employment practices, cyber liability, employee injury, auto and in most cases, professional liability.
What are the business owner policy exclusions?
The Property section of a BOP covers your company's assets, depending on the cause of loss or damage. Often, it is written on a special property form, unless the policyholder explicitly asks for the broad form version of the policy. A special form BOP ensures that any damage or loss is covered, except the causes of loss specifically excluded from the policy. Thus, understanding the policy's exclusions is just as crucial as understanding its coverages. Below is a list of hazards that are excluded from a BOP:
- Weather conditions or smog
- Military actions
- Water flooding, seepage of water, sewage backup, etc.
- Building Law and Ordinance
- Nuclear hazard
- Explosion damage caused by machinery, specifically engines or boilers
- Off-premises power failure
- Unlawful intentional actions
- Misconduct or fraud committed by employees
- Loss of market
- The interruption or failure of electrical power supply artificially generated away from the insured property.
- Wear, and tear, inherent vice, that results in damage
- Damage caused by animals, insects, birds, etc.
- Decay, rust, or corrosion.
- Shrinking or expansion.
- Property loss attributable to errors concerning design, planning, and development.
- Professional liability
- Cyber loss
- Employee Injury
BOP Insurance Eligibility Requirements
Business owners must note that only small to mid-sized business ventures are typically eligible for Business Owner’s Insurance (BOP) policy. The eligibility requirements for a BOP differs among providers. Lower risk, main street type businesses like retail stores, barber shops, printers, cafes, computer stores, and office risks are typically eligible for Business Owner’s Policy.
- The business should be in a low-risk industry.
- Depending on the carrier a business should have less than a set maximum amount of revenue or payroll.
- It is recommended to include 12 months of Business Income Insurance including extra expense.
The primary aspect of BOP eligibility is whether the business’s industry is low risk enough to be eligible. Small businesses in low-risk industries are more likely to be approved for a BOP. The next consideration is the size of the business, size is determined based on gross revenue. Because of the low rates for a BOP policy, it is not designed to insure large national entities.
Though each insurance company has different eligibility guidelines, if your organization meets these prerequisites, you may qualify for BOP insurance:
- Employs less than 50 people
- Industry risk is low
- Revenue is less than $1 -$5 million annually
- Limitation on insured property values vary
Types of businesses that are eligible for a BOP are:
- IT Consulting
- Main street type businesses
- Retail stores
- Cafes, sandwich shops, ice cream parlor
Companies in low-risk industries will also pay a smaller premium for their business insurance than those in high-risk industries.
If your business has over 50 employees, you likely don't meet the policy qualifications. Therefore, most medium-sized companies with more than 50 employees require a commercial package policy that also bundles different coverage types together. A commercial package policy is more customizable than a BOP. Besides workers’ compensation and business auto, any other coverage can be added to a commercial package policy.
Insurance companies are stringent about the eligibility requirements, although, the maximum annual revenue and payroll amounts may vary from company to company. Many business types are not considered eligible for BOPs due to the nature of their operations being considered a higher risk. When a business is ineligible for a BOP, there are always other options such as a mono-line general liability or another type of package policy that are available to meet a business’s need.
A Business Owner’s Policy provides the trifecta of business protection – Commercial Property Insurance, General Liability Insurance, and Business Interruption Insurance. Some BOPs offer optional coverage such as employee dishonesty coverage, mobile equipment and on a limited basis, professional liability (barber, beauty salon, printer) depending on the business situation. The BOP coverage components are flexible to meet your business protection needs.
Breaking down the coverage
Business Owner’s Policy provides extensive coverage with added benefits of customization and flexibility. It presents to you a combination of vital coverages- Commercial Property, General Liability, and Business Interruption Insurance. You may also have the ability to add optional coverages and tailor the policy to your small business needs.
An in-depth explanation of the coverage with practical examples will help you gain a better understanding of the policy.
• Commercial property insurance
Commercial Property Insurance helps protect your business’s physical assets. When damage occurs to owned property due to a covered peril, the insurance company will reimburse the business for the loss in exchange for a set amount of premium. If your restaurant kitchen catches fire, your location loses a roof during a hurricane, or your business is burglarized-all of these incidents would be covered losses with the right business policy in force.
• General liability insurance
Even when a claim or lawsuit is groundless, a business encounters the costs to investigate and possibly pay negligence claims. Bodily injury and property damage losses that arise from business operations, completed projects or product liability are examples of possible claims or lawsuits. General liability insurance will pay for your legal defense and judgments awarded for covered losses.
• Business interruption insurance
Business Interruption Insurance mainly replaces income lost due to direct damage to a covered location causing the business to close. For instance, the roof may be blown off during a hurricane, not only the roof but the entire interior space is damaged and contents ruined. Many businesses do not survive after a major property loss or supply chain disruption. Lost revenue, day-to-day ongoing expenses like payroll for key employees, expediting replacement equipment, and relocation to a temporary space are just some of the things that this type of insurance will cover. Business income coverage can help get your business operational and profitable again.
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BOP Additional Coverages
You can customize your Business Owner's Policy (BOP) with additional coverages by endorsement. Some popular optional coverages that you can add to your Business Owner's Policy (BOP) include :
If your business holds a lot of cash on hand that increases your risk of a robbery, or if some of your employees have access to cash, bank accounts, and checks, you may want to consider coverage for money and securities and employee dishonesty. These can be added to most BOP policies.
Data breach coverage, which some insurers refer to as cyber insurance, helps pay expenses resulting from a data breach, like:
- Informing affected individuals regarding a bushfire.
- Engaging credit monitoring services if they should be needed.
- Public relation management.
This coverage is essential if you run or own a business that handles or stores personal information of private customers, patients, or workers. Adding a cyber endorsement to a BOP is an affordable option for some businesses. A stand-alone cyber policy is recommended because the coverage provided tends to be broader and it can be tailored to include other types of cyber losses like ransomware, denial of service attack, phishing, and more.
• Other Policies to Consider
Professional Liability Insurance
Professional liability insurance covers licensed, certified, and degreed individuals and business entities from errors and omissions occurring in the performance of the service provided. This insurance is also known as errors and omissions coverage and is appropriate for accountants, architects, engineers, real estate agents, lawyers, insurance agents, inspection firms, and business consultants. If in doubt, ask!
Workers’ Compensation Insurance
For companies with employees, workers' compensation insurance is essential. It is purchased separately from a Business Owner's Policy (BOP) and is required in most states depending on the number of staff employed. The amount you pay for the premium depends on your industry and annual payroll by job duty.
Workers' compensation insurance coverage pays for medical care needed for an employee due to a work injury, illness, or death. An illness must be directly related to the job performed, it cannot be a contagious virus or bacterial infection. Miners that suffer from black lung disease would be an example of a work-related illness that could be covered under workers’ compensation.
Workers' compensation pays your employees a percentage of lost income if they cannot work due to a covered injury or illness. Workers' Compensation Insurance will pay an injured worker's income until they can return to work.
Commercial Auto Insurance
Commercial auto insurance is critical for companies that own vehicles. This coverage protects your company from liability due to negligence while using a motor vehicle.
Business Owner’s Policy Cost
A Business Owners Policy bundles general liability and commercial property insurance at a reduced cost. Replacement values of your business-owned assets and real estate, the industry of operation, location, building age, construction type, annual revenue, and payroll affect the premium amount charged.
Because of the many variables that make up the rates to be charged on a BOP, there is no way to provide even an average premium. Do you think that the same type of business in Kentucky pays more or less than in Florida or California? Less! Kentucky is not prone to hurricanes or earthquakes.
Advantage of a Business Owner’s Policy
A business owners' policy covers both business property and business liability protection. It is a general policy for companies with small to moderate liability needs. Its premium is usually cheaper than it is if these policies are purchased separately.
A BOP can be set up to meet the needs of your particular business. With the support of your insurance consultant, you can design a bundle specially tailored for your business's needs. The main types of coverage generally included in this policy are :
- Property Insurance - The policy covers damage or loss to the property resulting from a specific list of events described in the coverage. These events are listed in the policy and may include fire, wind damage, smoke damage, vandalism, and explosions. This policy will provide coverage for damage to the building, whether owned or leased.
- Business Interruption – a type of property coverage that will replace your lost revenue stream when your building is damaged by a covered peril that prevents normal business operations.
- Premises and Product Liability – This coverage extends to incidents that arise from your business operations that cause property damage or bodily injury to others (not you or your employees). Examples include customer property damage caused by an employee while performing a service in their home, injuries due to malfunctioning products, slips and falls at your business location, and so on.
Why Get a BOP from Insurance Advisor?
The BOP is one of the most flexible insurance policies in the industry. Selecting customized coverage for your business can be challenging. Tell us about your business and our licensed agents will make recommendations for a policy most suited to your specific business needs. Since BOPs can be tailored based on your priorities, we will guide you to find appropriate insurance at an affordable cost. Consult with our professionals to get advice on purchasing the right policy today!
- Business Owner’s Policy constitutes broad coverage that package the benefits of general liability, commercial property and business interruption.
- Business owners can add coverage for employee dishonesty, theft, equipment or professional liability depending on the type of business.
- Only lower-risk businesses that meet certain revenue & payroll caps qualify for this type of policy.
- A BOP does not include coverage for worker’s compensation and employee injuries. It will not cover your business auto exposures, flood or earthquake, these are all covered on separate policies.
Frequently Asked Questions (FAQ) about Business Owner’s Policy Insurance
1. What businesses are not eligible for the business owner's policy?
Each insurance company determines their own set of rules for BOP eligibility, most use revenue size, others may use employee count, others use a NAICS industry codes to check eligibility. Eligibility is not always determined the same way for each insurance company, you could have a revenue of $500,000 but still not be eligible because your industry may be considered a higher risk. If one carrier turns you down for a BOP, another may find your business eligible.
2. Does one legally need a business owner's policy?
A Business Owners Policy (BOP) includes general liability and property coverage and has the ability to be customized by adding additional types of coverage, employee dishonesty, computer coverage, and equipment breakdown to name a few. Whether you legally need to have this coverage will depend on your operations and what your local and state government requires for businesses to operate. Many may require general liability, also known as public liability. It is common for a city or county government to require general liability to operate a business in there locale, but even if not required, having coverage before you open your business is recommended. Typically, for property insurance, you will only be required to have it by a bank or finance company if you have a business loan with them that was used l to purchase those business assets being insured and used as collateral.
3. Can you cancel the business owner's policy without any issues?
Yes, you can cancel the business owner’s policy without any issues. When you cancel a policy, it means that the policy is terminated. Insurers or insureds can cancel the policy before the end of the policy period. The amount of return premium that you are due upon policy cancellation will depend on the reason you are cancelling the policy. If the business is sold, the full pro-rata amount of premium will be returned. If you cancel because you replaced the policy with another carrier, or are cancelling mid-term for some other reason, you may be subject to having a “short-rate” penalty applied to the return premium. A short-rate penalty is typically 10% of the amount of return premium. If you are owed $300 in return premium, you would receive $270.
4. Are banks covered under the business owner's policy?
Banks are covered on a company’s BOP usually as an additional interest, for instance if the bank is your mortgagee on your business building, they have an insurable interest in the property insured. A bank may want to be listed as an additional insured on the general liability, again only as their interest as a mortgagee on the property. Banks themselves generally would not be eligible to be insured on a BOP as their scope of operations is at a higher level of risk than the business types that the BOP is intended to cover.
5. Do business owner's policies cover general liability?
Yes, they cover general liability, as well your business owned assets such as building, machinery, equipment, inventory, furniture and fixtures on a business owner's policy.
6. What is the difference between a BOP and a CPP?
An average small to medium size risk would benefit from a bundled package of property and general liability coverage called a BOP. While in a CPP, a Commercial Package Policy also bundles together general liability, property but you can also add many other coverage types to a package which you can’t always do with a BOP. The premium rating structure is not as advantageous as a BOP on a CPP because there will be a separate premium charge for each line of coverage included on a CPP whereas the BOP includes limits for other coverage automatically with no extra charge. Coverage on both the BOP and the CPP can be tailored to the specific risks and needs of a business.
7. How is a premium paid for a business owner's policy?
Premiums for business owner's policies are typically paid monthly or annually. Many insurance companies offer a direct bill program to break up your annual premium to monthly payments. Sometimes you may have to use an outside finance company so installments can be paid, with this option, an interest rate is set and finance charges accrue, increasing the overall cost of the policy. Your best bet is to go with a carrier that offers a monthly payment plan though they may charge an installment fee of $2 or $3, but this still ends up being less than the finance charges with a finance company. Annual premium payment discounts may be available from some insurance companies, but this is rare.
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