UPDATED: Mar 19, 2020
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What A Business Owners Policy Is
A business owners policy, commonly called a BOP, is a package of insurance policies that most small businesses need coverage for. What’s included in a BOP is general liability insurance, business property coverage for the businesses property and building if applicable, and business interruption insurance. The advantage of buying a BOP is that it’s usually a more convenient and less expensive option to buy these types of policies bundled together as a BOP rather than buy each type of insurance policy separately.
The Coverages Of A Business Owners Policy
A BOP has coverage for the general liability of a business's activities. General liability provides coverage if a business is sued for causing bodily harm to someone and/or damaging or destroying someone's property. It also provides coverage to cover the cost of mounting a defense against a lawsuit. One of the main exclusions on a BOP is damage arising from the operation of one of the company’s vehicles; that is only covered under a commercial auto policy.
A BOP has coverage for the building a business owns, if applicable, as well as the property of the business. This covers things like computer equipment, phone systems, inventory, furniture, valuable papers, and accounts receivables. The property of a client that is under the care, custody, and control of a business is also covered under their BOP insurance policy. This is especially important for businesses like a dry cleaner who have a lot of people’s property on their premises. A BOP generally insures against any cause of damage to the property with exceptions, the main ones being earthquake and flood damage. Most business property loss is usually caused by fire, water damage, and theft.
Business interruption insurance, or business income as it is sometimes called, is a type of coverage that provides funds if a covered event results in the business having to suspend its activities. This can happen if a fire occurs at the business, its entire inventory is destroyed or stolen, or other similar catastrophic occurrences. The policy will replace the lost business income so that the business owners can continue to meet their financial obligations such as paying rent or making payroll.
While these are the three main types of policies included on a BOP, this package can be customized to meet the individual needs of a business. A coverage that is becoming more important over time is data breach coverage, or cyber liability, which is important for any business that stores customers information such as name, address, social security number, or other highly personal information. This coverage covers the expense of providing customers with credit monitoring services, the cost of public relations to restore the company’s good reputation, as well as coverage for legal defense and judgments if the business is sued over the loss of data. Some BOP policies also provide coverage for extortion and/or ransom payments when a hacker takes total control of their computer system and will only release it after being paid an exorbitant amount of money.
Another optional coverage is equipment breakdown, which includes the business’s computers and other equipment. There is also coverage for personal and advertising injury if a company accidentally engages in copyright infringement, slander, or libel. Additionally, another coverage that can be added to a BOP is employment practices liability which helps cover a business owner if they engage in some wrongful acts during the act of hiring an employee. Another optional coverage is employee dishonesty. If an employee engages in theft of money or other securities this will compensate the business owner, usually with a limit of $10,000 as a default.
Terrorism is another optional coverage on a BOP policy, although there are very few small businesses that add this specialized coverage. It was mandated after 9/11 that commercial insurance companies add this coverage which business owners have to accept or waive if they don’t want the expense of coverage of this type of insurance. This insurance provides compensation to the business owner if their business is subject to a specified terrorism event which damages or destroys their property or otherwise limits their ability to conduct business for a period of time.
The Types Of Businesses That Need a Business Owners Policy
Business Owners Policies are targeted towards small business owners. There are a few criteria that make a business a good candidate for a BOP policy. The first is that the business location is outside of the home of the business owner. If a person has a home based business with no employees they can likely add coverage for their business under their homeowner’s policy which will likely provide enough coverage for what they do at a good price, although a visit to an insurance agent to be sure would be advisable.
Another reason to buy a BOP is if you’re a business that owns a significant amount of business property, especially if there is a large amount of inventory. A single fire or big theft can result in the end of a small business that doesn’t have business property coverage, something that is covered under a BOP. The cost of insuring against such an event is rather insignificant given the risk of such an event occurring which isn’t all that uncommon.
A typical small business has less than 100 employees which means they are prime candidates for a BOP policy which is tailored to cover the liability of just such a size of a company. Another indication that your business should consider a BOP is if you have sales of less than $5 million a year. While a BOP won’t cover every type of risk, especially if the business is one that provides advice or professional services which requires an errors and omissions policy or malpractice insurance, this type of insurance will insure against the risks that most businesses face.
How Much A Business Owners Policy Costs
The amount of money that a business owner will pay for a BOP depends on a number of factors. The first is the type of business they own as some types businesses are riskier than other types. Every insurance company uses an industry standard code for each type of business that in large part determines what the business owner will pay. For example, a plumber which could cause extensive damage to a home is more expensive to insure than a seamstress that just sews clothing for people to wear.
Other factors that determine how much a BOP costs includes the limit of liability coverage as well as what optional coverage a business owner needs to add for their particular type of business. If the owner of a business has had claims in the past three years that will also increase the premium of the policy as the insurance companies regard them as riskier to insure than the norm.
How To Save Money On A Business Owners Policy
Just buying a business owners policy over buying separate insurance policies for business property, general liability, and business interruption is a great way of saving money to begin with. It also pays to shop around with at least a few insurance agents that represent different companies in order to make sure you’re paying the best price you can while making sure each agent is offering comparable coverages. It’s important to make sure that each policy you are comparing has the same limit of general liability insurance – both aggregate and per incident – as well as the same limit of property insurance that is sufficient to cover what your business ordinarily has on hand including inventory.
Another way of saving money on the cost of a BOP policy is having good policies in place to limit the business’s liability exposure. Making sure employees are properly trained and controlling other risks will go a long way toward helping to keep the costs of a BOP policy down. Like many things, good business practices result in more revenue and more profit in regard to the costs of insurance and other business related expenses.