As a small business owner, you know your insurance needs extend beyond the basics covered by your personal insurance. A business owners policy, often called BOP insurance, can provide the additional coverage that you need for peace of mind at the workplace.
What does it mean to have a BOP insurance? At its simplest, this coverage provides liability insurance as well as property insurance to cover you and your employees, as well as your business's structure and any items within it that you own. Let's go into a little more detail to gain a better understanding of what a business owners policy can do for your small business.
What Does a Business Owners Policy Cover?
It’s good to know what coverages are in a BOP. A BOP can be considered a package policy, since it includes several kinds of insurance that the business owner would otherwise need to purchase separately. Providers may offer a better insurance quote and price for the bundled deal than they would for the policies purchased separately.
These policies can be customized, but at their most basic they include two types of coverage: liability insurance and property insurance, along with business interruption insurance in some cases.
General Liability Coverage
What is the difference between general liability and BOP? General liability is one of the most basic types of insurance coverage, and many kinds of insurance, from auto to home, offer a foundation of liability coverage. It covers any claims made against you by third parties for injuries or property damage. BOP always has some general liability coverage as part of the package.
For example, if someone comes down with food poisoning after eating in your restaurant, they could file a suit claiming your food caused their illness. Even if it turns out to have been something else that made them sick, you have still lost time and money in defending yourself in court.
Liability coverage can also cover damages and medical costs if the company is shown to be liable for a person's injuries or damage to their property, up to the policy's limits, and legal fees when necessary.
If your business has any possibility of being sued, liability protection is strongly advised. Keep in mind that your business does not necessarily need to have a physical location to be sued. An online website-based company may also be open to lawsuits from disgruntled customers. Even a lawsuit with little merit may cost a business greatly, both in extra expenses and time lost, making liability coverage an imperative.
Consider, for example, an Etsy store that sells handcrafted dog collars. The business is run out of the owner’s home, with no dedicated business property. If someone sues them for a defective collar that injured a dog, the business may need to spend a lot of time dealing with the lawsuit and could be crippled financially. BOP liability coverage could allow the business to move forward by covering legal or veterinarian costs as needed.
Property Insurance
Does BOP include hazard insurance? Yes. This type of coverage, also called property insurance, is something you may be familiar with from your homeowners insurance policy. This aspect of your policy covers you if there is damage to your building or its contents from any of a series of perils, such as fire, wind, or hail. It also covers you for theft and vandalism of any items kept on the property, from computers to retail inventory.
Business property is not covered by your homeowners insurance, even if you run your business out of your garage, unless you have a separate rider included. Your business owners policy will cover the building structure if you own it. If you rent your space, it will cover the contents, while your landlord's policy should cover the structure itself.
Property insurance looks a little different depending on your insurer. Some policies, for example, cover equipment breakdown; others don't. Also be aware that a few potential disasters, such as flooding, require an additional rider for you to have coverage.
Business Interruption Insurance
This type of coverage is sometimes called business income insurance, and it will pay for revenue that is lost if your business must close because of a disaster, such as a fire or flood. Your policy documents will outline what perils are covered, but they generally include common disruptions such as wind damage, lightning, and hail damage.
A common question is whether this insurance would cover you if you needed to close during the COVID pandemic. That’s a good question to ask your insurance rep, but in general, the answer is no. Business interruption insurance is used to pay for costs related to a specific physical loss that leaves a visible mark on your business. Viruses do not fit this model, and thus are not covered.
Losing the day-to-day income that your business brings in may be a true hardship for you and your employees, and in the event of a fire or other peril, business interruption insurance will help you meet payroll and handle other financial tasks until your business is once again up and running. It may also cover outstanding loan payments, and costs incurred in moving to a temporary location.
Other Optional Coverages
Your business owners policy can include optional coverages as needed to protect you from more specific threats. A common one is cyber liability insurance, which can pay for the costs if you have a data breach or are hacked. This is particularly important if you retain information on your customers or clients, such as names, addresses, and, most importantly, credit card or payment information.
Another optional coverage is professional liability, also called errors and omissions coverage. This is slightly different from general liability. It pays for costs associated with an error or mistake that you make in a professional capacity. If, for example, you are a financial consultant and you strongly encourage a client to purchase a stock from a company that soon goes bankrupt, they may blame you for their loss. Even if their claim is baseless, you could incur the costs of a lawsuit. Errors and omissions coverage will help pay for those costs.
Other options include mechanical breakdown coverage, which can provide additional insurance for computers, machines, and electrical equipment, and employment practices liability insurance, which covers you from lawsuits related to discrimination and wrongful termination. Sometimes, these coverages are part of a basic BOP policy; other times they may be add-ons—your insurance rep can tell you whether they are part of your policy.
What Does a BOP Not Cover?
As we've said, a business owners policy is a package deal: you pay one premium, and receive both liability and property coverage. But there are other types of insurance that can be equally important, depending on the type of business you own, and these are not included in a business policy. That includes the following:
- Business auto insurance: If you own vehicles, whether it's a fleet of delivery vans, rental cars, or a refrigerator truck, you will need commercial auto insurance to cover them. Your insurance company can work with you to develop a policy customized for your vehicles and your particular needs, but it will be a separate policy from your business insurance policy.
- Workers’ compensation insurance: In almost every state (Texas is the exception), you will need workers’ comp insurance if the number of employees you have is more than three to five, depending on where your business is located. Workers’ comp pays for injuries and lost wages if an employee is injured on the job, and may provide compensation in the event of a death. You can sync your workers' comp policy with your payroll, so premiums are based on actual wages—and not a guess—by using a platform like Hourly.
- Umbrella insurance: All insurance policies have a limit, which is the most you can receive following a claim. An umbrella policy gives you coverage over and above that limit, protecting you from high-end losses that could result from a disastrous lawsuit. Generally, it provides this extra padding to your liability insurance or your auto liability insurance.
There is some flexibility in what your business owners policy will cover, and working with an experienced insurance company can help you craft a policy that is customized to the needs of your own business. Endorsements, or riders, can be added to your policy with optional coverages that may help pay for everything from data breaches to an advertising injury.
Who Is Eligible for Small Business BOP Insurance?
Business owners insurance is intended for smaller businesses, with exclusions for large corporations. In general, if your company has 100 employees or less, and revenues up to roughly $5 million annually, you will find BOP insurance a benefit.
Do all small businesses have eligibility for BOP insurance? In general, yes. If your business has a physical location, you will need small business insurance. If your business is one where you could be sued for medical expenses or more, which could disrupt business operations, the same is true. BOP insurance would cover you for loss of income or property damage, if the need arises.
What Is the Difference between a BOP and a Commercial Package Policy (CPP)?
These two types of coverage share some similarities. Both usually include commercial property insurance, along with liability protection. Both are geared towards smaller businesses, such as retail stores, although a commercial package policy tends to attract larger operations with a somewhat higher level of risk.
Where they differ is in the scope of coverage offerings available through the policy. A CPP has a broader range of additional coverages that you can include with your policy, as well as greater flexibility in building the basic policy, allowing you to craft it for your business's specific needs.
Whereas the basic items that a BOP covers are fairly set in stone, A CPP can include options such as auto coverage or crime protection. Neither a CPP nor a BOP, however, can cover workers’ comp insurance or group life insurance.
In short, if your coverage options are fairly common, and include liability and property damage, a BOP may be your best choice. If you want the ability to build your policy from the ground up, meanwhile, you'll want to explore the benefits of a CPP.
What Are the Benefits of a BOP Insurance Policy?
Small business owners understand the risks involved in business, no matter what sector that business is involved in. Traditionally, insurance covered a business from risks such as damage caused by a fire or vandalism. Increasingly, however, risks are related to technology, and coverage is needed for situations such as cyber liability to protect against data breaches.
A business owners insurance policy can do that and more. No policy can protect completely against every possible risk, but a solid, well-crafted BOP can offer the business owner peace of mind and protection against most of the perils that modern businesses face every day.
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