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Understanding a Business Owners Policy (BOP)

Jason Metz

A business owners policy (BOP) typically combines general liability insurance, property insurance and business interruption insurance into one package. A BOP is usually purchased by small and mid-sized businesses. And business owners insurance can be customized with additional coverage to fit the specific needs of a business.

Business liability insurance: Covers injury and property damage lawsuits against a business. This typically includes the cost of legal defense and judgments or settlements.

Commercial property insurance: Covers your building and its contents, which could include equipment, inventory, fences and outdoor signs. The problems typically covered by the policy include fire, hail, theft and vandalism.

Business interruption insurance (also known as business income): Pays for extra expenses if a problem covered by the policy causes you to temporarily close or relocate.

Remember that a policy pays out up to the coverage limits you choose. For example, if you have $500,000 in liability insurance and a judgment against you for $800,000, the business needs to come up with $300,000.

Do you need a business owners policy?

It's a good idea to get a BOP if your business has:

  • A physical location. This could be out of your home, an owned or rented space, a store or any other work place.
  • The possibility of being sued. A BOP can cover lawsuits related to injured customers, reputational damage the business caused to others, or equipment that damages someone else's property.
  • Property that could be stolen or damaged. This could be anything from cash to data, equipment, furniture and inventory.

What's not covered by a business owners policy?

Some problems require insurance that's not included in a BOP, such as:

  • Workers compensation insurance: Covers employees' work-related injuries and illness, plus some lost wages.
  • Health insurance: Businesses typically purchase group medical coverage for employee health insurance. Depending on the size of the business, you may qualify for a Small Business Health Options Program (SHOP).
  • Disability insurance: Pays part of an employee's salary while they're recovering from a non-work related illness, injury or pregnancy. You can typically buy both short-term and long-term disability insurance.

Additional business owners insurance choices

Endorsements and extra policies that can help fill any gaps in a business owners policy. Additional coverage choices can include:

Commercial auto insurance: For vehicles used for business purposes.

Business income and extra expense: An addition to the business interruption part of a BOP, business income and extra expense insurance covers above-normal operating costs to avoid shutting down during the restoration of a business after a problem covered by the policy.

Crime insurance: For forgery, fraud and theft.

Cyber insurance: Covers a cyberattack, such as a data breach that compromises customers' personal information.

Employment practices liability insurance (EPLI): For claims by employees that their legal rights were violated, such as breach of contract, discrimination and harassment.

Equipment breakdown insurance Also known as boiler and machinery insurance or mechanical insurance, this covers lost income due to electrical or mechanical breakdown of equipment, such as computers, engines, generators, refrigerators and phone systems.

Errors and omissions insurance: For claims that you did not provide services that were expected or promised.

Product liability insurance: For legal expenses, settlements and judgments if a product causes injury, illness or property damage.

BOP insurance cost

The cost of a business owners policy depends on factors that will be unique to the business, including:

  • Type of business. For example, if you work with heavy machinery or dangerous chemicals, the business has a higher risk than a barber shop.
  • Size of business. Generally, the more employees the more potential risk. Also, the more property you've got, the higher the insurance cost.
  • Location and type of property. If your property has higher risks, such as theft or fire, expect to pay more.
  • A history of claims. If the business has made claims in the past, it could be seen as a higher risk.

A BOP not only offers the convenience of combining several coverages types under one policy, but it can also save you money. Bundling several coverage types from the same insurance company often leads to a discount.