Business Requirements to Qualify for BOP Insurance
Many small-business owners purchase a Business Owner's Policy because it helps them protect their businesses from lawsuits and property loss. But when asking about BOP "requirements," business owners are often interested in a few different aspects of the coverage.
To make things easier, we'll break these requirements into three categories:
- Eligibility requirements — Do you qualify for BOP coverage?
- Coverage requirements — What you should require from your coverage?
- Legal requirements — When do you need a Business Owner's Policy?
Eligibility Requirements: Do You Qualify for BOP Coverage?
BOPs are desirable policies because they bundle General Liability and Property Insurance together at a discounted price. But before your can sign up for BOP coverage, your insurance company must check to see if you meet its eligibility requirements.
Insurance companies only offer this insurance bundle to small- and medium-sized businesses that meet certain criteria. In order to qualify for a Business Owner's Policy, a small business can't…
- Have more than 100 employees.
- Have a large office, workplace, or other premises.
- Make more than $1 million in revenue.
- Operate in a high-risk industry.
- Need more than 12 months of Business Interruption Insurance.
Business Interruption Insurance is often a part of the Property Insurance portion of your BOP. It insures your business income against the risk of an unexpected shutdown (as long as it's caused by a covered event). For example, if a storm damages a bakery storefront and the repairs take a month, Business Interruption Insurance reimburses the bakery for the income it loses.
Coverage Requirements: What Do You Need in a Business Owner's Policy?
We've gone over what the insurance requires from you, but what should you require from your insurance policy?
First of all, you should make sure that the BOP's General Liability and Property coverage fits your business's needs. BOPs cap policy limits (that's why they are only appropriate for smaller businesses), but you can choose from several specialized types of coverage (called "endorsements") to customize your BOP and add necessary protection.
Because of this, you'll want to find an insurance agent who specializes in your industry. This agent understands the types of BOP endorsements that best suit your business.
For example, a contractor who is always transporting tools and equipment from one site to the next might need an Inland Marine Insurance endorsement to protect property in transit. A restaurant owner might include a Spoilage endorsement that protects her inventory in the event that her refrigeration equipment breaks down. Regular Property Insurance does not cover these specialized risks.
You can also add coverage for things like cyber liability (aka data breach coverage), floods, and auto liability, if your business has these risks.
How BOPs Help You Fulfill Legal and Contractual Requirements
In some cases, you may be legally required to carry the coverage offered in a Business Owner's Policy.
That's because in order to sign contracts (including commercial leases), vendors and landlords often require General Liability Insurance. This coverage shows that you're financially secure enough to withstand common business lawsuits.
General Liability Insurance covers lawsuits when people outside your business blame you for…
- Slip-and-fall accidents.
- Product liability.
- Property damage.
- Advertising injuries (such as copyright infringement).
With this insurance, your legal bills are covered, and you are able to run your business and pay your bills — even in the midst of a lawsuit.
Property Insurance isn't required by law unless you have a loan secured on a piece of commercial real estate. Still, it's an important coverage for all small businesses, even ones that run out of the owner's home. BOP Property Insurance covers the tools, computers, and buildings a business owns. This policy is vital for protecting against fires and thefts, preventing one accident from destroying some of your most important investments.