Business Owner's Policy
What is a business owner’s policy (BOP)?
The BOP is a package of insurance coverages in a single policy that meets the insurance needs of many small business owners. It includes commonly required property and liability insurance and some optional coverages. Unlike other stand-alone small business policies, it eliminates coverage restrictions and limitations and offers additional enhancements.
What does a business owner’s policy usually cover?
Property coverage
- Buildings - the cost to repair or replace your building
- Business Personal Property - the contents of your buildings, including furniture, fixtures, machinery, equipment, inventory and tenant improvements to the building
- Property off premises - a limited amount of coverage for business property that is not on the insured premise (or property that is usually at the business location, but isn’t in this particular case)
- Glass and signs
- Business interruption coverage
- If your business suffers a property loss it could cause the business to slow or close down while repairs are made. This may mean a complete or partial revenue loss depending on the timeframe and the damage. From the time the loss occurs until your business is running again, insurance can replace your lost profits, and provide a source of money to pay your necessary continuing expenses, like rent, payroll, taxes, etc.
- You can also buy insurance to cover any extra expenses incurred in getting your business back into operation. It may take a while once you re-open for customers to discover you are back in business, which may hurt your bottom line. To meet this need, insurance companies offer coverage for the difference between your "before loss" business income and your "after loss" business income for a month or more while you regain your customers. Crime coverage - Property policies usually don’t cover the loss of money and securities, and exclude many crime-related losses. However, you can purchase crime coverage, which includes:
- money and security coverage - pays for money and securities taken by burglary, robbery, theft, disappearance, and destruction.
- employee dishonesty coverage - pays for losses caused by most dishonest acts of your employees, such as embezzlement and theft.
General Liability coverage - This is a package of coverages, which protects you and your business from lawsuits arising from:
- Accidents causing bodily injury to other people (a customer trips and falls in your shop)
- Accidents causing property damage to other people’s property (you sell a toaster to a customer which malfunctions and causes fire damage to their home)
- Personal injury such as invasion of privacy, wrongful eviction, libel, slander, or false arrest or advertising injury such as copyright infringement or false advertising.
- Commercial General Liability insurance which pays for the cost of legal defense including providing an attorney, paying court costs, and any settlements or judgements against the business. As always, the dollar amount of coverage depends on the terms of your policy.
Vehicle coverage - You may need non-owned and hired auto liability coverage for vehicles your employees use or that you rent or borrow, particularly if your business does not own a vehicle. Commercial auto insurance can cover these risks, including providing you an attorney, covering court costs, and payment to injured persons.
What’s not usually included in the BOP?
- Earthquake and flood insurance
- Workers compensation
- Group health, life, disability insurance
- Vehicle insurance for owned vehicles
- Specialized liability coverages, including certain professional liability, errors & omissions, malpractice, directors & officers, and employment practices liability
Who does a business owner’s policy usually cover? If the business is being operated as a sole proprietorship, then the BOP covers the business owner and spouse in their business activities. If the business is a partnership, then the BOP usually covers all of the partners and their spouses in their business activities. If the business is a corporation, then all of the officers are usually covered in their business activities, but not their spouses. For all forms of business entities, the employees of the business are also covered if they are sued for their actions in the course and scope of their employment.
How does a business owner’s policy work?
Property loss
If a property loss occurs, you should contact either your insurance agent or the insurance company and report the loss as soon as possible. Usually a claims adjuster will be assigned to handle the processing of your claim and determine to what extent the loss is covered by your insurance. Frequently, a recorded statement of your detailed description of the loss is taken. In property losses, you will also normally need to create an itemized list of the damaged, destroyed or missing property, including its physical description, replacement cost, and date of purchase. Often, the adjuster will make an "on-site visit" to view the damaged property and the effect of the loss on your business.
Once the claims adjuster has satisfied all the requirements to document the loss, the insurance company will complete its processing of the claim and issue you a check, which depends on the extent that your loss is covered by your insurance. Any disagreements you have with the insurance company regarding the extent of any insurance reimbursement can usually be resolved through discussions and the provision of additional information.
Liability claim
If a liability claim occurs, you should notify your insurance agent or the insurance company immediately. Rapid handling of claims of an injury to other persons often can accelerate the settlement of the claim. The claims handling process for a liability claim is similar to that of property loss, except the insurance company works directly with the third party making the claim against you. If the insurance company feels it is necessary, it may hire or assign an attorney to conduct an investigation and attempt to settle the claim as quickly as possible. Most policies provide the insurance company with the right to settle a third party claim, in good faith, regardless of your desire to fight the claim.
Why do you need a business owner’s policy?
Most business owners need a BOP or similar coverage to protect their assets since so many circumstances are completely beyond a business owner’s control. For example, a burglary or fire. In our society, defending against even a minor legal complaint is costly, and it’s a great relief to be able to hand over a claim to an insurance company that understands how to handle them. In most cases, for a modest premium, a BOP or similar coverage can provide you with a great deal of financial security, and permit you to keep your attention on running your business profitably.
What affects your insurance costs?
Insurers have many different rating formulas to generate premium quotations. The following factors are some of those that generally affect the amount of your premiums.
- Business type
- Construction type and building age
- Business location
- Building security features, including alarms, sprinklers, and whether your immediate neighbors present any fire hazards
- The 3 to 5 year claims history of your business
- Management experience, credit worthiness, years in business, and financial stability
- Liability and property insurance coverage amounts
- Elected optional coverages