Some insurance companies offer a Business Owners Policy (BOP) that bundles some of the most important insurance covers into a single package for small business owners.
It can make the management of your insurance much easier, as well as saving you money.
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It is less costly and more straightforward than buying each one of your insurance covers separately.
Each insurance company has its own form of Business Owners Policy insurance, offering different coverages and options for extensions.
Before you take out a Business Owners Policy, talk to an insurance broker or agent who is familiar with your kind of operations and risks, so that the coverage given by that company appropriately matches your requirements.
What kind of risk is covered in a Business Owners Policy?
Business Owners Policy generally offers three or four primary coverages, but some insurance companies also extend the covers by endorsing the policies to add specific coverage.
General liability cover
By being in business, wherever you operate, you have to take care that you will protect anyone who comes into contact with you or your employees.
If anyone suffers from injuries or property damage resulting from operations, you can be sued for damages, compensation and medical costs.
Liability is not something that you can choose to ignore – just by being in business and offering your goods or services to customers, you have taken upon yourself some risk.
Think about what may happen if some accident happens and a court decides that you were responsible.
Unless you have piles of surplus cash available to meet the awarded damages, you need insurance, which takes over the liability on your behalf, or you could lose your savings and even your business.
General liability insurance covers you for any claims of personal injuries to members of the public – even accidental death – as well as for loss or damage to someone else’s property.
For example, while you are working in a customer’s home laying new carpets, if a visitor to the home trips in the room where you are working and falls, you could end up with a lawsuit alleging negligence.
Commercial property cover
If you own the property where you are running the business, or if it is home-based, then this cover is critical.
For home-based businesses, it is vital to know that your personal homeowner’s insurance may not cover your building and contents and you could lose everything in the event of a major disaster like a fire or flood.
The only ways you can protect your home are to either get your existing homeowner policy endorsed by the company or take out a Business Owners Policy or commercial property insurance.
The advantages of a Business Owners Policy over standard property insurance are that some extra coverages are built-in.
Standard property insurance only insures against losses resulting from fire, storm damage (including lightning strikes, snow, wind or hail damage), as well as acts of deliberate damage (vandalism).
Damage from earthquakes and window breakage are not covered.
It can also include some cover for contents, this is usually very limited and excludes more expensive equipment.
Business Owners Policy offers a broader range of protection for content damage, theft and vandalism, earthquakes and can include inventory as well as office equipment.
Each company has tailored its own coverage, so you should discuss exactly what the policy is covering with your broker or agent.
If you are making a claim of storm, fire or flooding that completely stopped you from operating the business, you can also claim for up to twelve months reimbursement of expenses.
The expenses you will be reimbursed for include rates and taxes, utilities like gas, water and electricity, payroll, wasted advertising costs, rent or interest on mortgages.
Some policies also offer reimbursement of lost profits.
In addition, if you are forced to move into rented premises for the duration of the repairs, this will be covered by Business Owners Policy insurance.
Which businesses are eligible for the Business Owners policy?
There is a size cap that keeps big business out of the loop.
Only businesses with fewer than fifty employees and that generate less than five million dollars in sales revenue each year can subscribe to a Business Owners Policy.
This lets the insurance companies maximize the benefits for policyholders while not exposing themselves to excessive risk.
As a result, the policyholders enjoy lower premiums and better terms.
Business Owners Policies are restricted in some respects.
Businesses that are classified as high-risk, such as gas stations and motor workshops, manufacturers, taverns or cocktail bars, cannot get Business Owners Policy but must buy separate public liability insurance.
A Business Owners Policy is designed primarily for small and medium-sized businesses.
Additionally, the business cannot opt for more than one year of business interruption insurance.
How much Business Owners Policy cover should you take out and how much will it cost?
There is no difference between the levels of cover you should be taking, whether in individual policies or in a Business Owners Policy comprehensive.
In general, the levels of insurance depend very heavily on the size of your business or the value of the assets like building and equipment that you are wanting to insure.
Taking a typical example, this may be a guide for you to match against your own specifics:
- General liability insurance for a low-risk business should be set at $1 million for a single incident, and $2 million in total claims in any one year
- Commercial property insurance for buildings and contents worth the current value less depreciation
- Income replacement equal to your turnover less expenses for the past twelve months.
The Business Owners Policy policy costs will generally be 25 – 30% cheaper than what you would pay for each of these covers separately.
These may work out according to the following scales:
- General liability $1 million / $2 million costs $1000 – $1200 per year
- Property and contents costs 0.1 – 0.12% of value, so a total value of $500,000 will cost $500 – $600 per year
- Income replacement costs vary greatly between companies – you should get your broker or agent to provide you with multiple quotes so that you can see which one is fairest.
What is not covered under a Business Owners Policy?
Business Owners policies don’t cover professional liability, employee health or disability, vehicle insurance, or workers compensation insurance.
You will need separate policies for these.