What is a Business Owner’s Policy and Do I Need One?

Kim Porter

Running a business can be lucrative and rewarding—but it also comes with some degree of risk. A business owner’s policy can financially shield your business against some of the most common risks, often for less than $100 a month. But a BOP isn’t the best fit for every business, so it’s important to understand how they work. Here’s what to know.

What is a business owner’s policy? 

A business owner’s policy bundles three types of coverage—general liability insurance, commercial property insurance, and business interruption insurance—into one policy. Together, a BOP is typically cheaper than buying the coverages separately.

BOPs are designed for small and medium-sized businesses with up to 100 employees and $5 million in revenue. But not all businesses are eligible to buy one.

Businesses in the following industries can typically buy a BOP:

  • Restaurants.
  • Retail.
  • Warehouses.
  • Contractors.
  • Grocery stores.
  • Condo associations.
  • Convenience stores.
  • Landlords.
  • Wholesalers.

However, businesses in the following industries typically carry extra risk—so they’re often not eligible to buy a BOP: 

  • Amusement parks.
  • Bars and pubs.
  • Car dealerships.
  • Manufacturers.
  • Financial institutions, such as banks and credit unions.
  • Auto repair shops.

What does a BOP cover?

A standard business owner’s policy has three main types of coverage and may offer add-ons, too.

Business property insurance

Property insurance protects assets that you own or rent, such as tools and equipment, buildings, and any contents owned by the company. If these assets are harmed in a covered incident—such as theft, a fire, or a natural disaster—business property insurance can pay to repair or replace your belongings. It also may cover lost income if your business can’t operate because of the covered incident. 

This type of coverage may be necessary even if you run your business at home. Most homeowners insurance policies won’t protect your company’s technology, equipment, and files, or the policy may set low limits on what it will cover. 

General liability insurance

Liability insurance pays your legal bills if someone claims the business has harmed others. The harm may be a result of anything you and your employees do—or fail to do—that causes bodily injuries, property damage, or personal injury. Liability coverage can also protect your company in the event of libel, slander, and certain legal claims related to advertising.

This portion of a BOP can be helpful for businesses that work directly with customers and clients, own or rent a workspace, or could be vulnerable to advertising injuries and product-related claims. Some businesses even need to show proof of liability insurance when signing a contract or getting a small-business loan.

Business interruption insurance

About 40% of small businesses buy business interruption insurance, which covers the loss of income when your business has to temporarily close or slow operations after vandalism, theft, or a covered disaster. The policy can also pay for the costs of operating out of a temporary location. 

This portion of a BOP is necessary when your business has recurring overhead expenses, like payroll and rent. You’ll be able to meet your obligations even if your business isn’t generating income. 

Optional coverages

Insurance companies may also let you customize your business owner’s policy with add-ons. For instance, businesses that store or process sensitive information may benefit from cyber liability insurance. Or you may be able to bundle your BOP with coverages like workers’ compensation and professional liability insurance. 

Cost of a business owner’s policy

A business owner’s policy costs an average of $85 a month or just over $1,000 a year, according to The Hartford. But the amount you pay can vary, depending on several factors:

  • Coverage limits: BOP limits usually range from around $300,000 to $4 million, and you’ll generally pay a higher premium when your policy includes more coverage. Many businesses purchase policies with $1 million / $2 million in coverage, which means the insurance company will pay up to $1 million per claim and up to $2 million during the policy term, which is typically a year.
  • Industry: Every industry has a different level of risk, and your insurance price reflects that risk. Businesses in higher-risk industries, such as construction, generally pay more because the insurance company is more likely to pay for claims. 
  • Size of expenses and value of property: Generally, your policy will cost more if your business assets are expensive or difficult to replace. 
  • Business location: Businesses that operate in expensive or high-crime areas will typically pay more for insurance. 
  • Size of business: As the size of your team increases, so will your risk exposure. Therefore, businesses with more employees typically pay more for a BOP.
  • Claims history: Insurance companies can check whether you’ve filed insurance claims in the past and the amount you received. You may pay more for a BOP if you have a claims history.

What a BOP doesn’t cover

A standard business owners policy doesn’t cover the following:

  • Professional liability insurance protects your business against claims of negligence when employees make mistakes in the services they’ve provided to customers or clients.
  • Commercial auto insurance is designed to protect you and your employees while driving for business purposes. It typically includes liability, collision, and comprehensive insurance, and you may be able to add extra coverages.
  • Workers compensation insurance is legally required for most employers. It helps pay for medical bills, rehabilitation costs, and lost income for injuries and illnesses that happen on the job, regardless of who’s at fault. 
  • Health insurance is a benefit you may be required to offer your employees. They’ll use this coverage to pay for their medical care costs.
  • Flood and earthquake insurance are separate policies that pay for damage to your property after a flood or earthquake.

Who should buy a BOP?

Your business first needs to be eligible to purchase a BOP. If you clear that hurdle, then you may need a BOP if your business…

  • Owns or rents a workspace.
  • Works directly with the public.
  • Owns valuable business property.

Shopping around and comparing business owner’s plans can help you understand your options and consider which coverages to include in your policy. If you already have some type of insurance policy through a provider, start by getting a quote with that company. Do the same with a few other insurers so you can compare prices, coverage options, and company reputation. Then choose a policy and make sure you understand the terms and conditions before signing on the dotted line.

Kim Porter Kim Porter covers personal finance topics for AARP The Magazine, Bankrate, U.S. News & World Report, Reviewed, Credit Karma, and more. When she’s not writing, you can find her training for her next race, reading, or planning her next big trip. Twitter | LinkedIn
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