Do You Need a Business Owner's Policy (BOP)?

Most small businesses need general liability insurance to protect themselves from third-party bodily injury and property damage claims. Many businesses also need commercial property insurance to cover the costs of repairing or replacing physical assets damaged by a fire and other peril. While small businesses can buy separate general liability and commercial property policies, a convenient alternative is a business owner’s policy (BOP), which includes both coverages.

What Is a Business Owner’s Policy?

A business owner’s policy (BOP) is a package policy designed for small businesses. It combines general liability and commercial property coverage in a single insurance contract. Some insurers write BOPs on standard Insurance Services Office forms while others use their own policy forms.

BOPs are intended for businesses with low-risk exposures, such as small contractors, retail stores, small office buildings, low-rise apartments, and restaurants with limited cooking facilities. To obtain a BOP, applicants must meet insurers’ eligibility requirements. While many small businesses will qualify, insurers may reject those that have no physical location, employ more than 100 workers, or generate more than a specified amount of revenue (for example, $5 million).

Who Should Buy a Business Owner’s Policy?

Almost any small business that owns buildings, equipment, or other property can benefit from a BOP. The policy offers the following advantages:

• Price: It’s usually cheaper to buy a BOP than separate liability and property policies.
• Convenience: It automatically includes many of the coverages small businesses need.
• Flexibility: Coverages can be added or modified via endorsements (amendments to existing policies) to meet the specific needs of the business.

What Does BOP Insurance Cover?

A BOP includes both general liability and commercial property insurance. General liability insurance protects your business from claims by customers and other third parties for bodily injury or property damage. These include claims for which you’ve assumed liability under a contract and those alleging personal or advertising injury such as libel and slander.

The commercial property section of a BOP covers physical damage to business-owned buildings, machinery, equipment, and other personal property. Businesses can choose between named perils and all-risk coverage. Named perils policies cover property damage caused by a peril listed in the policy, which can include:

• Fire
• Vehicle collision
• Vandalism or theft
• Water, ice, and snow damage

All-risk policies cover property damage caused by any peril or risk not specifically excluded from the policy.

The property section typically includes both business income and extra expense coverages. Business income (also called business interruption) insurance covers income you lose when your business is forced to shut down because property at your premises has been damaged by an insured peril. The insurance covers the income loss you sustain while the damaged property is being repaired.

Extra expense insurance covers costs you incur to keep your business running or minimize the effects of a shutdown when property located at your premises has been damaged by a fire or other covered peril. This type of insurance covers extraordinary expenses like the cost of moving to a temporary location or the cost of renting a piece of equipment (such as a refrigerator) to use while your device is being repaired. To be covered, the expenses must be tied to the physical loss.

Additional Coverage Options

A variety of coverages can be added to a BOP. Here are some examples:

• Cyber liability and data breach insurance. Cyber liability insurance covers third-party claims against your business for the loss or misuse of personally identifiable information; for example, a client sues your business after hackers break into your computer system and release the client’s information online. Data breach insurance covers expenses you incur to recover from a data breach, such as the costs of notifying customers of the breach and hiring a public relations firm.
• Professional liability. Ad agencies, accounting firms, marketing consultants, and other businesses that provide advice to customers or clients may need professional (errors and omissions) liability insurance. It covers claims based on negligence, errors, omissions, misrepresentation, or inaccurate advice.
• Hired and non-owned auto liability. Businesses that use vehicles for their operations need auto liability insurance even if they don’t own the vehicles. Hired auto liability insurance covers claims that arise from accidents involving the use of rental vehicles. Non-owned liability insurance, meanwhile, covers claims stemming from accidents involving the use of vehicles (other than hired autos) the business doesn’t own, such as autos owned by employees or partners.
• Utility services interruption. A power outage or other utility services failure can cause damage to business-owned property. It can also lead to an income loss if the business is forced to shut down until the utility services are restored. Businesses can extend their property damage insurance, business income insurance, or both to cover losses caused by utility services interruptions.

Frequently Asked Questions (FAQs)