Business Owners Policy: Everything You Need to Know About BOPs & How They Work

A business owners policy (BOP) is a package policy for small businesses. That ‘package’ includes both commercial property and general liability insurance.

Insurance companies that cater to small businesses will offer a BOP. Generally, small businesses must meet certain requirements to qualify for a BOP – like work in certain industries or be under a certain size.

Today, we’re explaining everything you need to know about a business owners policy (BOP), including what you need to know about BOPs, how they work, and how to find the right BOP for your unique needs.

What is a Business Owners Policy?

Many major insurance companies offer business owners policies (BOPs) to small businesses. A BOP is a package of multiple insurance products consisting of two core components:

• Commercial Property Coverage
• General Liability Coverage

Some insurers issue business owners policies on standard Insurance Services Office (ISO) forms, while other insurers use their own proprietary forms.

A standard BOP consists of a declarations page, a BOP form, a common conditions section, and one or more endorsements.

Pros and Cons of a Business Owners Policy

Many small businesses already have commercial property coverage and general liability insurance. Why does a small business need a business owners policy?

A BOP delivers two crucial benefits to small businesses: coverage and price. At the same time, a BOP comes with certain disadvantages – like a lack of flexibility.

Pros

Price: A BOP offers broad coverage for a relatively low premium. In other words, business owners are getting more insurance for less money.

Coverage: A BOP can cover more than a traditional business insurance policy package would cover, including business income that isn’t automatically included under a standard commercial property policy. Plus, the liability section of a BOP offers the same type of coverage as a standard ISO commercial general liability form (CGL), but at a price that’s affordable to a small business.

Cons

Flexibility: A BOP typically isn’t as flexible as a standard package policy. You may not be able to customize your BOP beyond basic coverage options. A standard ISO BOP, for example, includes only property and general liability coverages.

Lack of Endorsements: With a standard insurance policy package, you can customize options based on your needs. You can add or remove endorsements, for example. to ensure your business is fully protected. With a BOP, you might not be able to add commercial property, general liability, commercial auto, inland marine, crime, and professional liability insurance under the same package. There are fewer modification options.

These disadvantages don’t apply to all BOPs offered by all insurance companies. Some insurers are more flexible regarding what can and cannot be included in a BOP.

Who is Eligible for a Business Owners Policy?

Only certain small businesses qualify for a business owners policy. The insurer will check to verify each small business meets those qualifications before providing coverage.

Generally, businesses must meet specific size requirements to qualify for a BOP. A small wholesaler with 10,000 square feet of space may qualify for a BOP, for example, while an office building with more than 100,000 square feet would not.

Businesses in certain industries may also be ineligible for a BOP. High-rise buildings, manufacturers, auto dealerships, auto repair shops, tree trimmers, bars, parking garages, banks, and theaters, for example, will not qualify for a BOP due to the size or nature of their operations. These companies may have greater liability coverage requirements than what an average BOP would be able to provide.

Specific BOP qualification rules vary between insurance companies. However, some of the most common businesses that rely on business owners policies include:

• Hotels and motels
• Barber shops
• Fast food restaurants, cafes, delis, and sandwich shops
• Small contractors (i.e. residential construction contractors, drywallers, carpenters, and landscapers)
• Apartments and condos
• Retail buildings
• Office buildings

How Does Commercial Property Coverage Work with a Business Owners Policy?

Commercial property coverage on a standard business owners policy is similar to any ISO commercial property policy.

It covers all of the following types of property:

• Buildings located at premises described on the declarations page
• Machinery and equipment permanently installed in covered buildings
• Personal business property located in covered buildings
• Tenant improvements in covered buildings
• Property that belongs to other people (non-leased personal property owned by someone else)
• Building glass owned by you or in your custody (if you are a tenant)

What Types of Damages Are Covered By a Business Owners Policy?

A business owners policy is an all risk policy, which means it will cover any losses or damages by any peril except for perils specifically listed under the ‘exclusions’ section.

You can expect to see similar exclusions to what’s on an average property insurance policy, like exclusions for earthquakes and flooding, among other perils.

Additional Coverages and Endorsements Available for a Business Owners Policy

One advantage of a business owners policy is that it offers broader coverage than a traditional policy. A BOP automatically includes many items that you would normally need to add via an endorsement.

Additional coverages that should be automatically included on your BOP include:

• Business income (covers net income and operating expenses)
• Extra expenses
• Civil authority coverage
• Valuable papers (covers written documents like books, maps, films, drawings, deeds, mortgages, and manuscripts)
• Accounts receivable
• Electronic data
• Newly acquired property
• Interruption of computer operations
• Mold damage

How Does General Liability Coverage Work Under a Business Owners Policy?

The general liability coverage under a BOP consists of two third-party liability coverages:

• Bodily Injury and Property Damage Liability Coverage
• Personal and Advertising Injury Liability Coverage

Both coverages are bundled under a single insurance contract.

Your business also gets medical payments coverage through its BOP, which covers medical expenses incurred by individuals injured as a result of your business activities. Medical payments coverage (MedPay) functions like health insurance. It makes payments to injured parties even when they don’t file a lawsuit.

Optional Coverages and Endorsements Available for a BOP

A business owners policy has several coverages included automatically. However, you can still add certain endorsements to a business owners policy.

Employee Dishonesty: An employee dishonesty endorsement covers the cost of reimbursing customers victimized by a dishonest employee. If an employee stole from a customer, for example, then this endorsement covers that reimbursement.

Money and Securities: This endorsement covers certain lost cash from the business. Small businesses collect cash throughout the day and move it around, and there’s a risk of this cash being stolen.

Business Income and Extra Expenses: If a small business’s property experiences structural damage or other hazards, then the small business may need to temporarily relocate. This endorsement pays for the loss of income and additional expenses incurred as a result.

Equipment Breakdown: Small businesses rely on all types of equipment to earn money – from brewing equipment to HVAC systems. When this equipment breaks down, this endorsement will cover it.

Outdoor Signs: Does your business have a costly outdoor sign? These signs can be damaged by storms and other perils. This endorsement covers the cost of repairing or replacing a sign.

Overall, a business owners policy isn’t as customizable as a standard business insurance package. However, endorsements are available to cover various items as needed for your unique business needs.

Raising BOP Coverage Limits with Commercial Umbrella Coverage

Does your small business have higher liability needs than similar small businesses? Fortunately, most BOP insurers offer commercial umbrella insurance policies.

These policies can be written in conjunction with a business owners policy. Like ordinary umbrella insurance, commercial umbrella insurance raises your liability limits to protect your assets.

How Much Does a BOP Cost?

The cost of a business owners policy varies between providers.

Progressive claims their average BOP policyholder pays $61 per month, for example, or $732 per year. Generally, a small business pays anywhere from $500 to $3500 per year for a BOP, depending on the size and scope of the business.

A larger business with higher liability requirements and endorsements will pay more for a BOP.

A small retail store in a leased building may pay just $600 per year for a BOP, for example, while a dentist office in an owned building with multiple policy endorsements may pay $3,000 per year.

Final Word

A business owners policy (BOP) is a type of insurance coverage available to small businesses that meet certain requirements. It provides a bundle of coverage options at a price that’s reasonable for small businesses.

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