If you’re a small business owner and speak to an insurance agent about insuring your business, they might suggest what’s called a “business owner’s policy” or a “BOP,” as it’s known in the insurance biz.
On the surface, it makes sense — you’re a business owner, and you need an insurance policy. Boom, DONE.
However, BOP insurance isn't always the right type of coverage for every small business. It really depends on the specific needs of your business and the types of risk you and your businesses need protection against.
What is a business owner’s policy (BOP)?
A business owner’s policy combines two important types of business insurance: general liability insurance and commercial property insurance. Typically, insurers bundle these two types of coverages together in one package that’s less expensive than buying separately.
General liability insurance
General liability covers injuries for which you are liable. This is when the injury is physical in nature, called bodily injury. Or the injury could perceived, such as slander or defamation (known as advertising injury).
For example, it helps pay for medical expenses if your business is held responsible if a customer slips and falls at your business.
General liability insurance also helps cover property damage costs — when you or an employee accidentally damage someone’s property. For instance, say you own a home cleaning business. You accidentally knock into a crystal vase while vacuuming, which shatters on their floor. Your client insists you pay for a replacement, which insurance can help you with.
Commercial property insurance
Commercial property coverage helps pay for your business goods, gear, equipment and inventory if something happens, like a theft or a fire.
Business property insurance also can help pay for repairs, construction and expenses if the structure where you do business gets damaged. (If you own that space, that is.) So if a tree crashes through your building’s roof after a big storm, you would have help paying for the repair.
Commercial property coverage also includes business income interruptions. This policy aspect will compensate you for when your business operations must pause due to a covered loss.
For instance, say a fire damaged the building where you run your business. If you can’t work until that space is repaired, your insurance will either provide alternative space or monetary compensation for financial losses.
Exclusions and what BOP insurance doesn’t cover
While BOPs have wide coverage options, certain things aren't covered that you may need for your business.
For example, you won’t find professional liability coverage in most BOP plans, although NEXT does include it for some types of businesses. This is essential coverage for malpractice or other mistakes made while offering professional services.
You also won’t find workers’ compensation insurance included in BOP coverage. Most states require this coverage, even if you only have a single employee.
Whether you have a single work van or a small fleet of delivery vehicles, your commercial auto insurance can provide coverage, but it’s not included in the BOP. However, you can sometimes purchase auto coverage at a discount if you buy both auto and BOP policies from the same company.
Depending on the insurance company, you may be able to add additional coverages to your BOP based on your business needs. These include liability for crime and employment practices (in case of discrimination, wrongful termination, or other charges related to your employment practices). You also may want coverage for things like electronic data or valuable papers that may be excluded from coverage.
Is BOP insurance right for your business?
While the business owner’s policy covers general liability — which most businesses can benefit from — you may not need property coverage. It all depends 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 and inventory in case of an unexpected closure due to a fire, for example, or their cooking equipment gets damaged or stolen. 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 different requirements. A personal trainer or fitness instructor isn’t going to need that same coverage. They’re also going to need a different set of liability protection. For example, a trainer will want general liability insurance in case there is an injury and professional liability insurance in case there is a business disagreement. However, they might not need property insurance if they don't have a equipment or a physical space they own or rent.
Generally speaking, a BOP might be right for you if you:
- Have a physical location for your business
- Have equipment or inventory that could get stolen or damaged
- Interact with customers and the public
Businesses are not made equal. While certainly adequate for some professions, a business owner's policy may not fit with your insurance needs.
BOP insurance: the pros and cons
One of the main advantages is getting multiple coverages under one policy and one company. Bundling allows for a single point of contact and 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. There are often high fixed costs associated with issuing and servicing a policy in the traditional insurance model.
At the same time, BOPs 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.
For example, take the personal trainer example from earlier. They can operate a business from a park if they want to or sign up to train at a new gym if the old one burns down, so business interruption insurance isn’t something they would need either. The key coverage they’d need 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).
When seeking out insurance coverage for your business, it is important to list out the coverages YOUR business needs, and decide whether a BOP fulfills those requirements. It may be easy to buy a standard package, but buying it could be like trying to fit a square peg into a round hole. Instead, it’s better to work with an insurer where you can create tailored coverage.
Customized BOP insurance with NEXT Insurance
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. Because NEXT Insurance works exclusively with small business owners, we can help you figure out the right amount of business insurance — BOP or not — for your needs.
You can purchase the business owner’s policy you need online in less than 10 minutes. We’ll ask you a few questions about your business and create a customized insurance quote.
You can adjust the package to fit your preferences and purchase easily. Coverage begins right after payment, and you can access your certificate of insurance immediately.
If you have questions at any time, our licensed, U.S.-based insurance advisors are ready to help.