What Is a Business Owners Policy?

What You Need to Know About Business Owners Policies

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A business owners policy (BOP) is an insurance policy designed to meet the needs of small businesses. It includes both commercial property and general liability coverages.

Learn whether a business owners policy is suitable for your business.

What Is a Business Owners Policy?

A business owners policy bundles property insurance and liability coverage in one handy package, offering protection for small businesses that is more affordable than purchasing those coverages separately. It's a standardized policy that is usually available for businesses with fewer than 100 employees.

How Does a Business Owners Policy Work?

Many insurers that cater to small businesses offer a BOP. Work with your agent or broker to buy a business owner's policy, or contact the insurer directly.

Once the policy has been paid for, your insurer can issue a proof of insurance document, which can come in handy when signing leases, for example.

Some insurers issue policies on standard Insurance Services Office (ISO) forms, while others may use their own proprietary forms. But most proprietary BOPs are simply variations of the standard ISO policy. The standard ISO BOP form consists of a declarations page, a BOP form, the common conditions section, and one or more endorsements.

The ISO is an organization that provides industry-standard policy forms, which makes it easier for small insurers to provide documents that will stand up in court.

What Does a Business Owners Policy Cover?

A typical business owner's policy will provide commercial property coverage, business interruption coverage, and general liability coverage.

Commercial Property Coverage

The property section of a standard BOP policy covers the following types of property:

  • Buildings located at premises described in the declarations, including machinery and equipment that is permanently installed
  • Business personal property located in covered buildings
  • Tenant improvements
  • Property that belongs to other people (for instance, if you rent)
  • Building glass owned by you (or in your custody if you are a tenant)

A BOP covers loss or damage by any peril that is not specifically listed in the exclusions section of the policy.

The exclusions in a BOP are similar to those found in an "all-risk" property policy.

There is also a special version of the form, which offers extended coverage of commercial property.

General Liability Coverage

A business owners policy includes two third-party liability coverages:

  • Bodily injury and property damage liability
  • Personal and advertising injury liability

The BOP provides both coverages under a single insuring agreement. It also provides certain coverages via exceptions to exclusions. Examples are contractual liability, host liquor liability, and damage to rented premises.

A BOP includes medical payments coverage, which pays for medical expenses incurred by individuals who have been injured as a result of your business activities. Medical payments coverage makes payments to injured parties in the absence of a lawsuit.

Business Interruption Coverage

Also known as business income coverage, this insurance protects your business if for some reason a natural disaster or other covered event interrupts your ability to conduct business. If your business has to shut down, this coverage will replace lost revenues.

Additional Coverages

One advantage of a BOP is that it automatically includes several coverages that are typically added by an endorsement under a standard property policy. Most of these coverages are included at a relatively low limit.

  • Extra expense coverage
  • Civil authority coverage
  • Valuable papers
  • Accounts receivable coverage
  • Electronic data
  • Newly acquired property
  • Interruption of computer operations
  • Mold coverage

Business owners policies don't cover every single risk associated with running a business. You may still need to purchase workers compensation insurance or auto insurance, depending on your situation.

Specialty coverages aren't included in a BOP. If you'd like to protect your business with cyber liability or liquor liability coverage, ask your broker to add an endorsement.

Commercial Umbrella

Some businesses may need higher liability limits than those afforded by a standard BOP. Fortunately, many insurers offer a commercial umbrella that can be written in conjunction with a BOP to extend those limits, offering more protection in the event of an expensive lawsuit.

Advantages and Disadvantages of a Business Owners Policy

  • Good coverage

  • Cost-effective

  • Not as flexible

Advantages Explained

  • Good coverage: The property section includes coverages such as business income that aren't automatically included under a standard commercial property policy. The liability section affords the same types of coverages as the standard ISO commercial general liability form (CGL).
  • Cost-effective: A BOP affords broad coverage for a relatively low premium.

Disadvantages Explained

  • Not as flexible: While a BOP can be altered or expanded by the addition of endorsements, it isn't as flexible as a standard package policy. The ISO BOP includes only property and general liability coverages. A standard package may include commercial property, general liability, commercial auto, inland marine, crime, and professional liability coverages. Many more endorsements are available for modifying a standard package than a BOP.

Some insurers will add professional liability or employment practices liability to a BOP. If you are shopping for a BOP and need these coverages, look for an insurer that will include them in the policy.

Requirements for a Business Owners Policy

Small businesses must meet certain requirements to qualify for coverage under a BOP, and these vary somewhat from one insurer to another. Many types of businesses are eligible for a BOP, including motels, fitness studios, contractors, and apartment buildings, provided they meet other requirements.

Some businesses are not eligible for a BOP due to their size or the nature of their operations. Examples are some restaurants, high-rise buildings, manufacturers, auto dealers and repair shops, tree trimmers, banks, bars, parking garages, and theaters.

Key Takeaways

  • A business owners policy combines several different coverages into one policy.
  • They're a good fit for small businesses, with fewer than 100 employees.
  • Business owners policies are pretty standardized, so if you require specialized coverage, you might want to choose a different policy.