All small businesses that deal with the public, whether online or from a store, office, or workshop, are at risk of losing their business if they are found liable for bodily injury or property damage. Although not every business owns the building they work in, they certainly have personal business property such as office furniture, equipment, electronics, and inventory. Knowing this, the insurance market has developed a package policy known as a Business Owner Policy (BOP).
What is a BOP?
A BOP (Business Owner Policy) is a packaged commercial insurance policy that assembles the basic insurance coverages needed by most small businesses. The two primary coverages offered are commercial general liability and commercial property coverage:
Commercial General Liability
This is the core coverage needed by almost every business. General Liability protects a business from liability claims involving bodily injury, property damage, and financial losses due to advertising efforts, as well as medical payments and defense costs.
Commercial Property Coverage
Commercial property coverage protects businesses, farms, and ranches, and will pay to repair or replace property damaged as a result of a covered hazard, such as fire, windstorm, lightning, and hail. According to the Texas Department of Insurance, coverage is available in three different types of policies:
- Basic form policy: covers the most common hazards, such as fires and storms.
- Broad form policy: covers the hazards listed in the basic form plus water damage, structure collapse, damage due to sprinkler leakage, and damage caused by sleet, ice, and the weight of snow.
- Special form policy: covers all hazards except those specifically excluded in the policy, such as flood damage, earth movement, war and terrorism, nuclear disaster, insect and vermin damage, and normal wear and tear.
Why Purchase a BOP?
The advantage of purchasing a BOP rather than separate policies is the obvious ease of having multiple coverages in one package, but more importantly not incurring the minimum premium requirement typically charged for each stand-alone coverage. For example, insurance carriers place a minimum premium requirement such as $350 or $500 before they will issue stand-alone policies. But with a BOP package policy, the minimum premium will only be required on the entire policy rather than on each separate coverage.
Which Businesses are Eligible?
The BOP is designed for small businesses in low-risk industries. A retail store in a mall, a small restaurant, any type of small business office, such as accounting firms, law firms, or health care providers are good examples of eligible businesses.
Eligibility coverage varies, but most standard insurance companies use the following criteria:
- Annual Revenue: Businesses earning more than $5 million annually are typically ineligible.
- Size of the primary location: Large facilities, such as warehouses and manufacturing plants, are ineligible.
- Number of employees: Since the BOP was designed for small businesses, employers with more than 50 employees are generally ineligible.
Typical retail stores with 10 or less employees are considered low risk and can benefit from a BOP. Small restaurants, even chains and franchises, employing fewer than 20 employees can also benefit.
What Optional Coverages are Available?
It’s important to discuss the various optional coverages that can be added to a BOP in order to meet the needs of a particular business. For example, a small business will typically take advantage of the following endorsements:
- Employee Dishonesty – Although we expect all of our employees to be honest and trustworthy, that is not always the case. If the business has an employee who steals from a customer, the Employee Dishonesty coverage will reimburse the business for the amount needed to satisfy the customer.
- Money and Securities – Since many businesses collect cash throughout the day, there is a risk of it being stolen, either on or off the premises. This endorsement reimburses the business up to the covered amount.
- Business Income and Extra Expense – If a small business suffers structural damage because of a covered hazard and must relocate while the building is under repair, this coverage pays for the loss of income and additional expenses incurred as a result of the event.
- Equipment Breakdown - Most businesses rely on expensive HVAC systems to keep their environment comfortable for customers and employees. If these systems fail, your equipment breakdown coverage will reimburse the expensive repairs or replacement.
- Outdoor Signs – Most restaurants spend considerable funds erecting a sign on their property. These signs can be damaged by hail, windstorms, lightning, and other perils, and can be insured for repair or replacement.
The cost of each endorsement depends on the insurance carrier and are priced at either a flat rate premium or percentage of the policy premium. Also, endorsements such as business interruption, spoilage, fine art, and money and securities are priced based on the limits of coverage for each particular coverage. It’s also important to note that an endorsement typically cannot provide coverage for what another policy will provide, such as auto insurance, worker’s compensation, or flood coverage.
How Much Does a BOP Cost?
Pricing for a BOP can vary based on underwriting factors of the business being insured and the additional coverages required through endorsement. Typical premium costs for a Business Owner policy range from $500 to $3500 per year, with an average cost of $1200.
Typical Examples of a Product Business and a Service Business
- Small Retail Store: General Liability and Property Coverage in a leased building with only a Business Interruption endorsement: $750 to $1200 per year.
- Neighborhood Dental Office: General Liability and Property Coverage in a business-owned building with Business Interruption, Employee Dishonesty, Lighted Sign, and Equipment Breakdown: $1500 to $3500 per year.
Typical factors, which will add to the cost of a BOP, are claim history, number of employees, total annual revenue, and replacement cost of the building, contents, and equipment.