For small business owners, managing risks is crucial to running a successful operation. From property damage to liability claims, unforeseen incidents can potentially derail growth or even shut down operations. That’s where a Business Owners Policy (“BOP”) comes into play. A BOP combines general liability and property insurance into a comprehensive package, making it an attractive and popular option for small businesses.
In this article, we’ll explore why BOPs are so appealing and provide five key questions to ask when selecting one for your business.
What is a BOP?
A BOP bundles essential coverages—typically general liability insurance and property insurance—into one convenient and cost-effective policy. It’s designed to protect small businesses from risks such as lawsuits, property damage, and business interruptions, which are common concerns for most entrepreneurs.
The primary benefits of a BOP include:
- Comprehensive coverage in one package.
- Cost savings through bundled pricing.
- Simplicity in managing only one policy instead of separate ones for liability and property.
Why are BOPs Popular with Small Businesses?
- Cost-Effective Bundling
Small businesses often face tight budgets, so affordable coverage with the proper protection level is essential. One key reason BOPs are popular is that they combine multiple types of insurance into a single package, often resulting in lower premiums compared to buying separate policies. This bundling saves money on coverage while addressing all significant risks.
- Simplified Management
Managing separate general liability and property insurance policies can take time and effort, especially for a small business owner juggling multiple responsibilities. A BOP simplifies this by bundling coverage, making it easier to manage and understand. Having a single point of contact and billing also reduces administrative overhead.
- Customizable Coverage
While BOPs provide standard protections—such as liability and property insurance—they can also be tailored to meet the specific needs of your business. Additional coverages, such as business interruption insurance, cyber liability, or equipment breakdown coverage, can be added based on your industry’s unique risks. This flexibility allows small business owners to create a policy that fits their needs without paying for unnecessary coverage.
- Broad Liability Protection
One of the key components of a BOP is its general liability coverage, which protects businesses from third-party claims involving bodily injury, property damage, or personal injury (e.g., libel or slander). For small businesses that interact with customers or clients, liability exposure is a major concern, and a BOP offers the peace of mind that you’re covered if something goes wrong.
- Property Protection for Your Physical Assets
In addition to liability coverage, a BOP includes property insurance to protect your business’s physical assets—such as buildings, inventory, and equipment. For small businesses that rely on physical locations, this coverage is crucial for repairing or replacing damaged property after a covered event, like a fire, theft, or storm.
Five Questions to Ask Your BOP Provider
While a BOP offers many advantages, it’s essential to choose the right policy for your business. Here are five key questions you should ask your provider before you select a policy:
- What Specific Risks Does This Policy Cover?
Understanding what is and isn’t covered under a BOP is crucial. While general liability and property insurance are standard, exclusions or limitations could expose your business to certain risks. For example, most BOPs do not include professional liability or workers’ compensation, which are critical for some companies.
Tip: Make sure to review the list of covered events and exclusions. If you operate in an industry with specialized risks, ask whether additional coverage is needed.
- What Customizations Are Available?
No two businesses are the same, and your insurance policy should reflect that. Ask your provider what endorsements or riders can be added to the standard BOP to cover risks specific to your industry. Common add-ons include cyber liability coverage, equipment breakdown coverage, and employee dishonesty coverage.
Tip: Prioritize the customizations that directly address your business operations, and avoid paying for extras you don’t need.
- How Will My Premiums Be Calculated?
BOP premiums are influenced by various factors, including the size of your business, industry type, location, and claims history. Ask how your provider determines premiums and whether you can take steps to lower them, such as improving safety protocols or installing security systems.
Tip: Ask if there are discounts for bundling additional coverages or maintaining a claims-free history.
- Does the Policy Include Business Interruption Coverage?
Business interruption insurance is an important feature sometimes included in a BOP. This coverage helps replace lost income and pay for operating expenses if your business is forced to close temporarily due to a covered event, like a fire or natural disaster. Make sure to ask if this is part of the standard BOP or needs to be added separately.
Tip: Confirm the duration of business interruption coverage and any waiting periods before it kicks in.
- What Are the Policy Limits and Deductibles?
Understanding the limits of your policy is critical. A limit refers to the maximum amount the insurer will pay for a covered loss, and a deductible is the amount you’re responsible for before the insurance kicks in. Ask about both to ensure your coverage is sufficient for your business needs.
Tip: Strike a balance between affordable premiums and deductibles that won’t be financially crippling if you need to file a claim.
By asking these five questions, you’ll be well-prepared to choose the right BOP and ensure your small business is protected from the risks it faces every day. It’s important to tailor the policy to your business’s unique needs and to ask the right questions when selecting coverage.
Are you still trying to figure it out? Do you need help getting started? Or do you want to evaluate what you’ve learned? Give us a call today.