BOP Insurance: The Smart Way to Insure Your Company
If you’re like most business owners, your company is most successful when everything’s running smoothly. But what happens when something beyond your control throws a wrench into the works? What if a windstorm knocks out power in your city for a week? Or a fire in a neighboring space ruins all of your merchandise? Will you be able to meet payroll and pay company bills?
Since you can’t predict when you might be hit with a natural disaster or a lawsuit, purchasing a BOP is a good way to get basic coverage when you’re starting your business. No matter how remote these risks may seem, just one hurricane or one personal-injury claim can make all the difference.
Smart business owners prepare for the unexpected by investing in a business owners policy, commonly referred to as BOP insurance. A BOP insurance policy combines property and liability coverage in one policy, and offers qualifying businesses insurance protection at a price that’s often lower than buying the same coverage separately or from different companies.
What a business owners policy covers
Think about BOP insurance as a homeowner’s policy for your business. It offers a range of coverage that most small and medium-sized businesses need. Most importantly, it can help you cover expenses when the unexpected interrupts your ability to generate cash flow.
Common BOP coverage includes:
- Property insurance, which protects your building, equipment and inventory.
- Business Income insurance, which protects you from losses that occur when you must suspend your operations due to a covered loss.
- Bodily Injury and Property Damage Liability, for those instances when your employees, products or services cause harm to other people or their property
- Personal and Advertising Injury coverage for copyright infringements, libel, or slander.
- Medical Payments coverage for medical expenses resulting from injury to others on premises you own or rent.
- Rented vehicle coverage also known as Hired Auto coverage – provides liability coverage for autos leased, hired or borrowed by the insured. Non-owned Auto coverage provides liability for employees using their personal auto in the business of an insured. Both coverages provide only liability coverage. A business auto policy is needed if physical damage coverage is desired.
- Equipment breakdown coverage, which protects you if your equipment is damaged from power surges, mechanical breakdown, burnout or operator error.
Like general property insurance coverage, the property portion of the BOP offers named perils or all risk coverage. Some policies will even include other types of property-related insurance such as extra expense policies as part of the package.
The liability portion of a BOP is structured quite similarly to a stand-alone Commercial General Liability (CGL) policy. The primary difference: A BOP gives you much less flexibility in determining your coverage limits for particular claims. It’s important, however, to note that a BOP does not include professional liability insurance, which protects you from losses or expenses resulting from claims of errors or omissions or negligence in your business.
Business interruption insurance is generally included in a BOP. Business interruption insurance is a type of income insurance that kicks in when a business has experienced a physical loss to the premises and is forced to vacate or operate under extenuating circumstances during repairs. Three types of coverage are available: business income coverage, which pays for a loss of profits and operating costs during the repair period; extra income coverage, for expenses above and beyond normal operational costs; and contingent business insurance, which covers a business owner’s earnings during an interruption of normal operations. Business interruption insurance covers lost income and expenses incurred when a company suffers disaster-related damage. Operating expenses that continue to roll in even if business is suspended, such as payroll, are also covered.
The business interruption coverage of a BOP typically provide reimbursement for up to a year of lost revenue resulting from an insured property loss.
The BOP does not cover income lost to the business in the case that a business owner or key person cannot work due to an injury or illness. A disability business overhead policy will provide a benefit to pay monthly overhead (salaries, rent, utilities, and other bills) to keep the business going when the owner is not able to work. This is a separate coverage that pays for one or two years of business expenses and you can have your broker quote this along with your key man disability coverage.
BOP insurance does not eliminate a company’s need for additional kinds of insurance. For example, you will still need to purchase business automobile insurance for any vehicles your company owns or a worker’s compensation policy to cover the exposures you might face if your employees get injured on the job. And there might be other risks your company faces, depending on the kind of business you operate. Cyber Liability and Errors and Omissions/Professional Liability and Workers Compensation coverages are NOT covered by a BOP.
Who needs to purchase a BOP? Almost every small business should look into a business owner’s policy for basic coverage. But to qualify for a BOP, you have to meet certain criteria: The company should have 100 or fewer employees, and revenues should not be more than $1 million. For companies that exceed these two limits, purchasing insurance a la carte is probably the way to go, and Commercial General Liability insurance is a good place to start.
While it is one of the most common types of insurance for small businesses, some companies may find the coverage limits of BOPs to be too low, or may not like the lack of flexibility on options like coinsurance.
Keep in mind, however, that what the policy lacks in flexibility it usually makes up for in lower premiums.