If you own a business and speak to an insurance agent about the insurance product that's right for you, they might suggest what’s called a “Business Owner’s Policy,” or a ‘BOP’ as it’s known in the insurance biz. It sounds sensible - but is it the right policy for YOUR business?
It may or may not be, depending on the specific characteristics of your business and the types of risk you and your businesses need protection against. Take a restaurant - the owner needs General Liability coverage in case someone were to get sick or injured due to the restaurant’s operations or food. They also need coverage for their physical space in case the building goes out of commission for whatever reason, their equipment in case it gets damaged or stolen, and they’ll also want business interruption coverage for if/when that happens. If the restaurant has employees, Workers’ Compensation coverage is also needed.
But take, for instance, an industry that has totally different requirements. A personal trainer or fitness instructor isn’t going to need those same coverage's, and they’re going to have a different set of liability concerns. They’re going to want Professional Liability coverage - in case a client is unhappy with the quality of professional advice provided. Coverage for property, equipment, or loss of income is likely not needed, however.
The takeaway: business are not made equal - certainly not for purposes of selecting the right insurance product. And Business Owner Policies, while certainly adequate for some professions, will not be the ideal product for all.
What is a BOP?
A standard Business Owner’s Policy essentially provides a bundle of different types of coverage that may be relevant to your business. These typically include, at a minimum:
This covers personal and bodily injury for which you are liable, whether the damage is physical in nature, such as an injury, or perceived, such as slander or defamation. General Liability is the basis of all commercial liability policies and is the true “business protection” aspect that will protect you from lawsuits that can bring down your business.
Property coverage, in this instance, is referring to the insurance the building you run your business out of - as well as tools and equipment.
Loss of Income/Business Interruption
This aspect of the policy will compensate you for when your business operations must pause due to a covered cause of loss. For instance, if a fire damages the building where you run your business and you can’t perform your obligations until that space is repaired, your insurance will either provide alternative space or monetary compensation for that loss to your income.
Depending on the insurance company, you may be able to add additional coverages to your BOP, such as crime insurance, employment practices liability (in case of a discrimination, wrongful termination, or other charge related to your employment practices), or coverage for things like electronic data or valuable papers that may be otherwise excluded from coverage.
What you won’t find in a BOP are options for Professional Liability (what is essentially malpractice coverage), Workman’s comp, or Auto coverage, although the latter can sometimes be purchased at a discount if you buy both auto and BOP policies from the same company.
Let’s talk pros and cons. The can be some advantages to a BOP. The main one is getting multiple coverages under one policy and one company, which not only allows for a single point of contact but also may lead to a lower price than purchasing the various policy components separately. Pricing a package lower than two separate policies may make sense for an insurance carrier since, in the traditional insurance model, there are often high fixed costs associated with issuing and servicing a policy.
At the same time, they aren’t necessarily as flexible as they could be. So if you don’t need that property coverage, you may end up paying for insurance that you won’t use. Take our personal trainer example from earlier - he or she can operate a business outside in a park if they want to, or sign up to train at a new gym if the old one burns down, so business interruption coverage isn’t something they would need either. What is key for them is General Liability (in case a client gets injured) and Professional Liability (in case they dispense some advice that leads to damage or an injury).
The bottom line is, when seeking out a new insurance policy for your business, it is important to list out the coverages YOUR business would need, and decide whether a BOP fulfills those requirements. It may be easy for an agent to sell you a standard package - but buying that package could be like trying to fit a square peg into a round hole. Your insurance purchase should be about what your business needs - not about a package that may be most convenient for your agent / insurer to sell. We advise looking for a provider who has a deep understanding of your vertical and offers coverage customized it.