Business Owner's Policy for Small Business

A business owner’s policy can be a good way to bundle several types of coverage without paying for more insurance than you need.

When you need insurance for more than one type of risk, bundling coverage for each risk with the same insurance carrier, in a commercial insurance package, can often save you money. But these packages are usually geared to large businesses that need high policy limits, and the packages can get expensive.

Unlike many commercial insurance packages, a Business Owner's Policy (BOP) offers insurance bundles designed for small businesses. Because you can tailor the coverage and policy limits to include only what you need, a BOP is often more cost effective than a commercial insurance package.

What Is Business Owner's Policy Insurance?

A Business Owner's Policy is an insurance policy that combines two types of coverage:

  • General liability insurance protects you if a customer or other third party is injured or their property is damaged due to your business, its operations, or its products, and
  • Property insurance covers losses and damages to your owned or leased business property (real estate, equipment, inventory, and the like) from unexpected incidents and hazards like theft and fire.

You can add other types of coverage to your bundle, like workers' compensation or commercial auto insurance, for an additional premium.

Businesses that deal directly with the public (such as brick and mortar stores and others with a physical location) typically need both liability and property insurance, because property insurance covers only property that you, the business owner, own or lease. It won't cover injury, damage, or loss to an outsider like a customer.

For example, if a fire breaks out in your computer repair store, property insurance would cover the cost to repair or replace your computers, but it wouldn't cover damage to the computers that customers left in your shop for repair. You would need a general liability policy to cover those types of losses.

What Does a BOP Cover?

The BOP policies offered by insurance companies vary from one to the other, so it's important to review each carrier's policy before you buy it, and compare coverages and deductibles. In general, a BOP will insure you against:

Bodily injury to customers and other third parties. If a customer or other outsider (like a vendor) is injured in a slip and fall or other accident on your business property, a BOP will help pay their medical expenses.

Damage to a customer's or other third party's property. If your business operation is responsible for damage to a customer's property, a BOP will help pay the cost to repair or replace the property.

Damages caused by products you make or sell. If your business's products cause bodily injury, a BOP will cover the cost of the injured person's medical care and related damages.

Financial losses due to mistakenly using another company's logo or name. If you inadvertently use another company's copyrighted logo in your advertising, or unknowingly use a business name owned by a competitor, a BOP will help pay the expense of responding to the owner's claim for damages.

Damage to your own business property. If your owned or leased personal or real property, such as your building, equipment, tools, and furnishings, is lost or damaged due to hazards like fire or theft, a BOP will help pay to repair or replace it.

BOPs usually also include business interruption insurance to help cover lost income due to a covered event like a fire until you get your business back on its feet.

Help With Legal Costs From Your Insurance

Your liability policy will, in most cases, also give you a lawyer's services when an injured party claims that your carelessness caused them a financial loss or personal injury. Typically, the claimant will demand payment from you, and you'll refer the matter to your insurance carrier. The insurance company will negotiate with the other side, involve their lawyers if they need guidance, and also represent you at trial if you don't reach a settlement (the vast majority of insurance claims settle). This lawyering is part of what you're paying for with your premiums.

Occasionally, the insurance company will take the position that the incident is not one that would be covered by your policy. For example, they might suspect that your behavior was intentional, not inadvertent, and deny coverage because insurance covers only accidental damages and losses, not those resulting from deliberate behavior. But because the facts are usually not fully known when the claim is made, they will usually represent you at least and reserve the right to deny coverage later.

Business owners sometimes assume that their insurance will cover only their own mistakes. But with a BOP policy, you'll be covered when accidents are the result of your employees and even, in some situations, a member of the public or a vendor or customer.

For example, if a customer is injured when the bookcase they admire in your furniture store tips forward when they attempt to open a cabinet, they might consider you responsible. But suppose the shelving was installed by an employee? Your policy would cover. Or, perhaps the shelving was inherently wobbly—the maker or designer could be at fault. No matter; your policy would step up and, if necessary, sue the manufacturer for reimbursement for any damages or awards.

What Other Types of Coverage Can I Add On to a BOP?

You can also buy coverage for some of the property types and incidents excluded from your BOP. (The insurance industry's rule of thumb is to create a special policy for every type of incident that they exclude under the general liability policy.) Examples of coverage you can add to your policy include:

Commercial vehicle insurance. The property insurance portion of a BOP doesn't include coverage for your commercial vehicles, and vehicles you use for your business aren't covered under your personal auto policy, either. You'll need commercial auto insurance to protect your business vehicles in the case of accidents, theft, and other damage and loss.

Workers' compensation insurance. Nearly all states require businesses that employ workers to carry workers' compensation insurance. BOPs don't cover injuries sustained by your employees while on the job, and you'll need a workers compensation insurance policy to help pay medical expenses and the wages an employee loses due to on-the-job injuries.

Employment practices liability insurance (EPLI). EPLI insurance can help pay your costs if you are sued for employment discrimination, sexual harassment, wrongful termination, and many other employment practice-related claims. EPLI typically covers these claims whether the business owner or another executive at the company is responsible. (EPLI coverage is a notable exception to the industry's rule that insurance will not cover intentional conduct.)

Professional liability insurance. Professional liability insurance protects doctors, lawyers, accountants, and other professionals against claims that their advice, counsel, treatment, or service caused physical or financial harm. If you're sued for negligence, malpractice, mistakes, or misrepresentation, a professional liability insurance policy will cover the costs to settle the suit or the judgment ordered if you lose.

Cyber liability insurance. If your business stores customer data like credit card information and your system is breached, cyber liability insurance will help pay the cost of recovering your data and fixing the breach and reimbursing customers for financial losses.

Liquor liability insurance. If you own a restaurant, bar, or other business that sells, serves, or distributes alcoholic beverages, and an intoxicated customer you've served causes injury or property damage, the injured person can, in most states, sue you (as well as the patron) as a responsible party. Liquor liability insurance will pay settlements or judgments, covering medical bills to treat injuries caused by the intoxicated customer. In a handful of states that do not have "dram shop laws," where the law imposes no liability on bars or restaurants for their intoxicated patrons' acts, the insurance is arguably not necessary (but a good idea anyway, in case a court chooses to impose liability).

Inland marine insurance. A BOP might not cover equipment, tools, and other materials that you transport outside your company's workspace. Inland marine insurance (which has nothing to do these days with inland waterways) protects valuable equipment that's damaged by theft, fire, and other perils outside the workplace.

Earthquake and flood insurance. Most property insurance policies don't cover natural disasters like earthquakes and floods, and the Federal Emergency Management Agency (FEMA) doesn't offer businesses the same types of grants available to homeowners for rebuilding after these types of disasters. To make sure you don't have to foot the bill for damages caused by a natural disaster, you'll have to buy a separate policy (not a blanket disaster policy—you'll have to specify the type of disaster) from an insurance company that partners with FEMA to offer coverage

What a BOP Doesn't Cover

A business owner's policy offers liability and property coverage for incidents and situations that are common to many businesses, but it won't cover everything that can go wrong.

Types of property damages that BOPs usually don't cover include:

  • business vehicles (but you can purchase separate coverage, as explained above)
  • the consequences of normal wear and tear
  • intentional acts (whether caused by an owner or a renter)
  • damage due to delayed or deferred maintenance
  • damage from mold and fungus (and sometimes lead)
  • pets, wildlife, and vermin (although the definition of "vermin" is quite variable from state to state)
  • natural disasters like earthquakes, and the consequences of war or civil riot
  • mechanical failures

The liability portion of a BOP typically excludes the following, but as noted above, you can usually purchase additional insurance to cover these incidents.

  • employee injuries sustained on the job (you'll need workers' compensation for this)
  • damages and injuries due to professional negligence, mistakes, misrepresentation, and malpractice (called errors and omissions)
  • damages and injuries caused by intoxicated patrons at your bar or restaurant
  • damages and losses to you or your customers due to data breaches
  • purposeful copyright infringement or willfully libelous or slanderous advertising (but here, willful conduct will not be covered; if you act purposefully, you're on your own)

What Types of Small Businesses Are Eligible to Purchase a BOP?

Insurance companies limit the types of businesses that can purchase BOPs. Though eligibility criteria varies, in general your business must have:

  • fewer than 100 employees, and
  • less than $5 million in annual revenue.

BOPs are usually available to businesses that operate in the industries listed below. You can also purchase a BOP for a home-based business (remember, your homeowner's policy won't cover your business property or liability that results from your home business).

  • retail stores
  • restaurants
  • construction and contracting
  • groceries
  • real estate such as rental properties
  • condominium associations
  • wholesale sellers and distributors, and
  • warehousing

In general, insurers won't sell business owner's policies to manufacturing companies, car dealerships, bars, auto repair shops, financial institutions, amusement parks, and other businesses where the risks and expense of claims are significantly greater than those presented by the ventures listed above.

How Much Does a BOP Cost for Small Businesses

A business owner's policy can cost as little as $35 per month or as much as $400 per month, depending on these factors:

  • the industry you operate in
  • the location of your business
  • the age of the business
  • your claims history
  • the number of employees
  • the value of your business property
  • the deductible you choose
  • the amount of coverage, and
  • other coverage details.

In general, a BOP for a company in the construction industry will be more expensive than one for a business consultant, because construction work usually involves more risk. At the same time, adding a number of additional protections such as the ones listed earlier can drive up the cost of your BOP, even if you are in an industry considered low risk.

For example, if a business consulting company were to add professional liability insurance, cyber liability insurance, and employment practices liability insurance to a basic BOP, the premium might rise to the high end of the range.

Where Can You Get a Business Owner's Policy for a Small Business?

Most major insurance carriers offer business owner's policies. The best way to begin your research is to conduct an online search using the term, "business owner's insurance," business owner's policy," or "BOP." Contact each insurance company directly. You can also contact a business insurance broker who will do the research for you.

You can also use online articles that rate different insurance companies according to certain categories, such as companies that are best for solo operators, those with multiple properties, or those who want to bundle several types of policies. But don't place too much reliance on these surveys, because some publications base their rankings on research they've conducted, while others solicit payment from the insurance company in exchange for a listing in the article.

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