What Is a Business Owners Policy?
A business owners policy, or BOP, combines general liability insurance, commercial property insurance, and business interruption insurance in one package. Bundling these coverages together lowers premiums. Businesses with less than $5 million in annual revenue and fewer than 100 employees are typically eligible.
Small business owners typically have three things on their mind when purchasing business insurance—coverage, convenience, and value. A business owners policy (BOP) is designed for each of these factors. By bundling general liability insurance, commercial property insurance, and business interruption insurance into a single policy, BOPs allow small businesses to save money and pay a single premium while securing essential coverage.
Business owner policies are a good option for many small businesses, but they’re not for everyone. If you don’t need all of the types of insurance that are bundled into the policy, then you might be better off buying these policies separately. We’ll explain more about BOPs, what they cover and don’t cover, where to purchase a BOP, and cost.
Who Should Buy a Business Owners Policy?
Although eligibility varies by insurance company, business owner policies are typically available to businesses that have less than $5 million in annual revenue and fewer than 100 employees. By bringing together liability, property, and business interruption coverage under one umbrella, BOPs can save you up to 20% on premiums were you to purchase each type of insurance separately. BOPs are also sometimes called commercial multi-peril policies.
The coverage provided by a business owner policy varies based on the insurance company, but in most cases a BOP provides basic liability and property insurance, plus business interruption insurance. Any business that has assets, such as equipment or inventory, could benefit from having a BOP. A BOP also is important for anyone who has a brick-and-mortar business location.
Let’s take an example to see the benefits of a BOP. Say you own a retail shop and a heavy storm hits the business district, causing damage to your facade. As a result, you have to close down the shop for several hours while you do some emergency repairs. You finally reopen but fail to notice a leak in the ceiling where water is dripping. The water pools onto the floors and causes a customer to slip, who then sues your business.
A BOP would replace or repair the assets that are damaged during the storm, pay for the facade repair, replace the income that you lose when you have to close down the shop, and cover the expenses of defending the customer’s lawsuit. But instead of paying three separate premiums for three separate types of insurance, you would pay just one premium for the business owners policy.
What a Business Owners Policy Covers
As we mentioned already, insurance companies differ in terms of which coverage they include in a business owners policy. BOPs are also customizable to some extent, and you can add or subtract add-on coverages as necessary for your company.
Most insurance companies include the following three types of insurance in a basic business owners policy:
1. General Liability Insurance
General liability insurance is the first line of defense for a small business owner and is always included in a business owners policy. General liability insurance covers the cost of defending lawsuits against your business. These lawsuits might allege bodily injury, property damage, or personal injury.
Slip and falls are the commonly cited example of what general liability insurance protects, but that’s just the tip of the iceberg. For example, general liability insurance also protects you if a competitor claims that you injured their reputation and sues you. Or if an employee is hanging a sign and dents the window of the business owner next door, that also falls under general liability insurance.
Anyone who owns a small business should have general liability insurance, or they take the risk of a lawsuit eating into their bottom line. You might even have to show proof of liability insurance when signing a contract or getting a business loan. Fortunately, general liability insurance is quite affordable, especially when bundled into a business owners policy.
2. Commercial Property Insurance
The other important coverage in a business owner policy is commercial property insurance. Commercial property insurance protects the building that your business is housed in, as well as any equipment or assets that your business uses. If your property is vandalized, stolen, lost, accidentally damaged, or damaged by weather, commercial property insurance will pay for the property’s repair or replacement. Some policies even cover loss or damage to electronic data.
Any business that owns or leases commercial space should have commercial property insurance. Most landlords expect their tenants to have their own commercial property insurance. You should also have this coverage if you manufacture products, maintain inventory, or keep equipment.
3. Business Interruption Insurance
Most, but not all, insurance companies, also include business interruption insurance in their business owner policies. Business interruption insurance covers lost income when your business has to temporarily slow down or stop operations after vandalism, theft, or a covered disaster.
The majority of small business owners don’t think about getting business interruption insurance, but it’s often what can help the most when your business faces an unexpected situation. Even if a business has to close down for just a few days, it’s possible to lose thousands of dollars in revenue and profit. Plus, even when your business is closed down, you still have to pay your employees and suppliers and meet other responsibilities. Business interruption insurance replaces lost income and lets you continue to meet your responsibilities.
What a Business Owners Policy Excludes
Business owner policies can be customized to a business’s specific needs. You can add optional coverages to ensure that a BOP covers your company’s primary risks. Not all types of insurance are a part of a BOP, but many are.
The following types of insurance are not part of a standard business owners policy, but you might be able to add them on to your BOP:
- Workers compensation: Workers compensation insurance, legally required for most employers, covers injuries or illnesses that employees experience in the scope of their work.
- Professional liability: Professional liability insurance protects service businesses and professionals against claims of negligence.
- Commercial auto policy: Commercial auto insurance insures you against accidents that happen while you’re driving for business purposes.
- Flood and earthquake insurance: Small businesses typically must buy separate, specialized policies to cover flood damage and earthquake damage. This is important if you do business in flood-prone or earthquake-prone zones.
- Employment practice liability: Employment practices liability insurance (EPLI) guards your business against claims of discrimination, such as gender or race-based discrimination.
You can also add umbrella or excess liability coverage to a business owner policy. These coverages fill in any gaps left by your primary insurance policies. If a claim maxes out the coverage limits on your general liability policy, for instance, you can tap into an excess liability policy.
Cost of a Business Owners Policy
The cost of a business owners policy averages $1,191 per year, according to insurance marketplace Insureon. The cost can be lower or more than that depending on several factors, such as your business size, industry, and claims history.
The following factors can affect the cost of a business owner policy:
- Coverage limits: The coverage limits on your BOP directly impact cost. Most small businesses purchase a $1 million/$2 million BOP. This means the insurer will provide $1 million in coverage per claim and $2 million aggregate over the lifetime of the policy (usually one year).
- Industry: Higher-risk industries with more exposure will pay a higher premium than lower-risk industries.
- Value and type of property: For the commercial property insurance portion of your BOP, cost depends on the type and value of the property you’re insuring. The higher the property value and the more difficult the property is to replace, the higher the cost.
- Business location and age: The geographic location of your business and your time in business will also affect cost. Newer businesses generally pay higher premiums.
- Size of business: The more employees you have, the more risk exposure you have, and the more you’ll pay for a BOP.
- Claims history: Insurers pay careful attention to your claims history when quoting you a premium.
Adding on optional coverages will also increase the cost of your business owners policy. The more coverage options you want to bundle into your BOP, the more expensive it will be. But overall, you can save up to 20% on premiums for bringing all coverages under one policy, instead of buying coverage separately. As long as you know that you have to buy a certain type of insurance, you don’t have anything to lose by including it in a package deal.
Photo credit: Hiscox.com
Where to Purchase a BOP
Dozens of insurance companies sell business owner policies, which can make things pretty confusing for small businesses that are shopping around. Where should you begin? If you already have general liability insurance, property insurance, or another type of insurance from a specific insurer, it’s a good idea to ask them if they offer a business owners policy. You will then be able to see how much money you can save by opting for the insurance bundle.
If you’re just starting your search for insurance or if your insurer doesn’t offer a business owner policy, then we recommend going with an A rated insurance company. The rating comes from global credit firm A.M. Best and is called a financial strength rating. The higher the rating, the more likely it is that the insurer will be able to pay your claims on time.
In no particular order, here are our recommended providers for buying a business owners policy:
Chubb is another small business insurance company that offers a business owners policy in all 50 states. They have an A++ rating from A.M. Best, which is the highest possible rating. Like Hiscox, you can get a quote for a Chubb BOP online and buy a policy online.
Based on your industry and the information you provide about your business, Chubb will give you different options to customize your business owner policy. At a minimum, all business owner policies include general liability insurance, commercial property insurance, and business interruption insurance. Professional services, financial services, and technology are three industries that most frequently obtain a BOP from Chubb.
Hiscox is an A rated insurer and one of the best options for small businesses that are in search of a business owners policy. Hiscox is one of the most reputable, experienced insurers for businesses, having been around since 1901.
Hiscox offers business owner policies for online quote and purchase in several states. You can fill out a short questionnaire about your business’s insurance needs, and then you will be able to see your monthly premium and decide whether to purchase the policy. General liability and commercial property insurance are included in a Hiscox BOP. So is business interruption insurance, although that’s already part of a Hiscox commercial property policy.
On the liability side, Hiscox provides extensive coverage for bodily injury claims, property damage claims, advertising and marketing injuries, and electronic data liability. On the property side, Hiscox provides up to $100,000 of equipment coverage and $10,000 of coverage for property that you transport out of the office. They will cover up to 12 months of lost business income in the event that damage to your property prevents you from operating your business. Up to $10,000 of coverage is also available to replace or restore electronic data.
The Hartford is an A+ rated insurance company that offers a business owners policy. They are highly rated for their claims service and customer support. The Hartford’s BOP combines general liability insurance, commercial property insurance, and business interruption insurance. Optionally, they allow businesses to add on data breach coverage or professional liability coverage to a BOP.
The downside to The Hartford is that it’s not always possible to get a quote and purchase a policy online. You might find that you go through the request-a-quote form, only to get a message telling you to contact The Hartford by phone. The Hartford still conducts most of their business through a network of independent agents.
Progressive Insurance has an A+ rating from A.M. Best and is best known for their home and auto insurance policies. However, they also provide several types of small business insurance, including a business owner policy. Restaurants, wholesalers, retail stores, and contractors are some popular business types that get BOPs through Progressive.
As with a standard BOP, Progressive insures against general liability claims, property damage, and loss of business income. Small businesses nationwide that bought a BOP through Progressive paid an average of $61 per month, which is on the low end for a business owner policy. You can also score some additional discounts. For instance, you can save 10% to 15% on your premiums by grouping together commercial auto insurance and a business owner policy.
Insureon offers a slightly different experience for insurance shopping. Insureon is an insurance marketplace, so they let you compare offerings from insurance companies. Hiscox, Chubb, and The Hartford are actually all among Insureon’s partners, so you can use Insureon as the middleman to compare their policies. By comparing policies, you’re likely to get the best deal on a business owner policy.
You can get several online quotes on Insureon after inputting some information about your business. Be ready to spend about 15 minutes filling out their online questionnaire. Should you decide to purchase one of the policies, then you’ll need to contact Insureon by phone. Their trained agents will help you figure out what optional coverages you should add on to your business owner policy for maximum protection. They’ll also help you complete your purchase.
The Bottom Line
A business owners policy is an affordable way to secure all the types of insurance coverage you might need for your company. The best part is that most BOPs are customizable, allowing you to add and remove coverage as you need to best fit your business’s risk exposures.
When shopping around for a business owner policy, you’ll want to think carefully about what types of risks you want to insure against and how you can best protect yourself if the unexpected happens. If you have questions, insurance companies are usually happy to help you go through an inventory of your assets, work through different possible scenarios, and get comprehensive coverage.
Priyanka Prakash, JD
Priyanka Prakash is a senior contributing writer at Fundera.
Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.