How does a Business Owner's Policy Work?
Small business insurance can get complicated – there are many policies to choose from, and each policy protects you from different losses.
One of the first policies a small business might purchase is a Business Owner's Policy, which covers several basic liabilities: lawsuits and property loss. If you've heard anything about a BOP, you've probably heard that it can save you money on your insurance. That's right. These policies have lower rates and are only offered to qualifying small businesses.
You're probably wondering whether you qualify for this discount and what the policy covers. So let's get right to it. Here are the answers to those and other FAQs:
- What is a Business Owner's Policy? A Business Owner's Policy is a two-policy insurance bundle that contains General Liability and Property Insurance. Insurers sell these insurance packages to small businesses. By buying these two policies together, you can qualify for lower insurance premiums.
- What does it cover? General Liability Insurance covers certain lawsuits, while Property Insurance covers the cost to repair or replace commercial property when it is damaged by a covered event.
- What lawsuits does a BOP cover? BOP General Liability Insurance covers lawsuits when a “third party” (a non-employee) sues you over property damage, physical injuries, or advertising injuries (such as copyright infringement). The insurer covers the cost of your lawyers as well as the amount of damages you owe the third party.
- What property damage is covered? BOP Property Insurance reimburses businesses when their covered commercial property is stolen, vandalized, or destroyed by a fire. Policies also cover some weather damage. Typically, non-major storms are covered (i.e., storms that aren't given names by the National Weather Service), while natural disasters are not covered.
- Can I add more property damage coverage to my BOP? Yes, to some extent. You can add "endorsements" to your policy to cover specific threats, such as earthquakes and flooding. While these endorsements are not discounted like your Property coverage, they are generally quite affordable because they offer such specific protection.
- Who needs a BOP? Sooner or later, nearly all small businesses need General Liability Insurance and Property Insurance – the coverage included in a BOP. For instance, landlords often require their commercial tenants to have GL Insurance because it can cover damage the business does to the landlord's property. You need these policies in order to sign contracts, protect your property, and grow your business.
- Who is eligible for a BOP? As we mentioned, only qualifying small businesses are eligible to purchase BOPs. Insurers are only able to offer a discounted rate on BOPs because they only sell the policy to low-risk small businesses (i.e., those that don't have major insurance needs). If you require high coverage limits, you may no longer be eligible for the discount. This includes businesses in high-risk industries and those that operate in high-risk locations.
- How much do I need? You'll need insurance that matches your risk. Your property coverage is based on the amount of property you own (or plan to acquire in the near future). On the other hand, most BOP General Liability Insurance policies offer between $500,000 and $2,000,000 worth of coverage to pay for lawsuits.
- How do I get it? You can apply for a BOP with an insurance broker. The broker then sends you Business Owner's Policy quotes, and you chose a policy that makes sense for your budget. (The broker can help you if you have any questions.) Many insurance companies can begin coverage within 24 hours of your application.
- What does a Business Owner's Policy cost? The cost of a Business Owner's Policy depends on the nature of your industry, the property you need covered, and other factors. An insurance company reviews your business and designs a policy based on these and other risk factors. Businesses with more risk, employees, revenue, and property tend to have higher rates.
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