Small and medium businesses may have the option to combine coverage onto one policy, the Business Owners Policy (also known as a BOP). It's a great way to reduce premiums and include a long list of coverage applicable to your business. Larger businesses or operations with unique risks usually will not have this option, however it's worth investigating as it's very beneficial.
A Business Owners Policy typically combines General Liability, Product Liability, Commercial Property, and Business Interruption insurance onto one policy. Some BOP programs may also include Cyber Liability, Commercial Automobile, and Employment Practices Liability. It's a great insurance product because it ends up saving businesses money so they don't need to get 5+ separate insurance policies.
Is a BOP the same as a Commercial General Liability policy?
Nope, and it can be a bit confusing separating the two. A BOP will include a CGL policy, however, the coverage extends way beyond third party bodily injury and property damage. If you are covered by a BOP then you'll have protection from customer injuries, damage to office equipment, and monthly income insurance if something goes wrong with your business.
What's all the hype about?
The best part about a BOP - it can be customized to fit your business needs. If you're a retail store and need more protection for property - easy, just add multiple layers of property coverage like Business Personal Property, Inventory, Goods in Process, Property in Transit, and more. If you're an ecommerce business and need higher cyber limits and business income - tell your advisor and they will design a robust program to defend digital attacks.
A BOP is an amazing risk management tool and should be considered by any business. Often times, businesses that have complex operations may need to separate coverage like General Liability and Commercial Property as a BOP can have limitations on coverage.
A business owners policy is the backbone to most insurance portfolios. It's usually one of the first policies a business will purchase and includes essential coverage to get a business started. It can also be built upon considering a lot of coverage is available to be added or expanded. For example, you can usually add Workers Compensation to the package of insurance with most BOP insurers.
BOP's were designed for small to medium sized businesses as a way to get a lot of coverage under one policy. Insurance carriers identified a BOP as a tool to help small businesses cover most of their businesses without underwriting multiple policies. They often have 20+ layers of coverage, so it's very beneficial for a growing business.
Generally speaking, any business that is eligible for a Business Owners Policy should consider it, regardless of their age, size, or operations.
At a certain point, businesses that are large enough will need to consider separating their BOP into individual policies. Coverage like Commercial General Liability, Product Liability, and Commercial Property will eventually surpass the limits of a BOP and require individual underwriting. The triggers that indicate when a business should rethink their insurance portfolio structure are the following:
- More than 100 employees
- More the $10,000,000 in revenue
- More than one location
- More than 1,000 customers
BOP insurance policies cover most industries - here's our list of the most common:
- Food & Beverage
ADVISOR TIP: The list of industries is constantly growing, so it's best to speak with an advisor about your business.
Business Owners Policies usually cover three important layers of your insurance portfolio - General Liability & Product Liability, Commercial Property, and Business Income. Every business has its own set of risk, so the BOP is designed to cover the core exposure and it provides multiple additional lines of coverage (for example, cyber liability and data breach insurance).
Let's take a closer look at the three core policies here.
General Liability & Product Liability
If a person or business decides to sue your business for third party bodily injury or property damage, a General Liability (CGL) and Product Liability policy are going to be useful.
For example - say your customer comes to your office or storefront and trips and breaks their arm. Since they were at your business, they have every right to sue you and pay for medical bills. A CGL policy will cover the legal defence and costs associated with this.
Most businesses own or rent equipment in order for their business to operate. Whether have computers and furniture inside an office, or perhaps you lease high-value equipment for your manufacturing business, a Commercial Property policy is a great policy to have. It's going to protect all of the property you are responsible for if it's stolen or damaged.
For example - if your office burns down and your computers, furniture, and equipment are destroyed, a Commercial Property policy will replace it.
Commercial property insurance is underwritten in various ways, often separating the categories of coverage. Below
- Building Insurance: covers the structure to an owned building
- Improvement & Betterments: covers permanent updates to a leased or owned building
- Business Personal Property: cover business property stored at a specified location (computers, furniture, etc)
- Electronic Data Processing Equipment: covers valuable electrical equipment (servers)
- Inland Marine: covers property that is used outside of a scheduled location (film production equipment, for example)
- Manufacturing Equipment: Covers expensive equipment used for creating products
- Inventory & Stock: covers products stored and ready to be sold to a customer
- Rented Equipment: covers non-owned equipment while your business rents or lease
ADVISOR TIP: You'll have the option to value your property at full replacement value or actual cash value. If possible, It's always recommended to insure at replacement value, so depreciation is not factored in at the time of loss.
Business Income & Extra Expense
Your business is usually able to operate if it's getting monthly revenue or income. If an unforeseeable event occurs and your business is forced to shut down, you'll certainly want insurance to keep the business alive. Your Business Income policy will pay the monthly revenue for 12 months (in most cases), if a bad event occurs such a natural disaster, or theft of essential business property.
In addition to the monthly income, it will help pay for the costs to get you back to normal. Perhaps your office burnt down and you need to find a new one -- a business income policy will cover temporary office space and other fees associated with finding a new premise.
Business Owners Policies are an amazing risk management tool as they provide a smorgasbord of coverage. However, they do not cover everything, and often the coverage is limited. There's a good chance that your business will need to customize limits to meet the needs of your business, or in some instances get additional policies.
The most common coverages not provided on a Business Owners Policy are the following:
- Workers Compensation
- Commercial Automobile
- Errors & Omissions
- Cyber Liability & Data Breach
- Directors & Officers
- Life & Health Insurance
ADVISOR TIP: review the coverage and exclusions with your advisor, every policy is different and it's best to learn about what you're paying for.
Similar to any type of coverage, many factors determine the cost of a Business Owners Policy. Small businesses may pay about $500 to $1500 per year for coverage. For bigger companies, the cost is higher especially when the industry is high-risk and has previous claims.
Some common factors that may affect the annual price are:
- Industry: As mentioned earlier, risks vary depending on the industry of a business. Insurers pay attention to risk and charge accordingly. The demand for coverage in high-risk industries is significantly high because businesses are aware of the risk involved in their line of work. The combination of demand and the risk involved determines the cost of a commercial umbrella.
- Employee Size: The more the employees, the higher the occurrence of claims. Employee size plays a role in the cost of commercial umbrella insurance. A company with hundreds of employees is likely to exceed the limit of existing coverage. On the other hand, a business with few workers may not need such coverage except in rare circumstances; the cost for a bigger company will be higher compared to a small business.
- Revenue: Your revenue affects insurance price because the bigger the revenue the larger the pay for legal rulings. Companies with big revenues pay more for liability insurance. To extend the coverage limit, a big business will have to pay a high amount while a small business will pay less.
- History of Claims: The history of claims is among the first few things insurers examine to determine how much a premium will cost. A company with numerous claims over the years pays a high premium because there's a strong chance of having more claims. Sometimes a business may be ineligible for a premium due to its history of claims. And even in situations whereby a company hides past claims, an insurance company on discovering this may not release a payout. Insurers require transparency to know what type of coverage is suitable for a business based on record.
- The Coverage Limit: The coverage limit of existing policies influences the limit of a commercial umbrella policy. Commercial umbrella insurance typically pays up to a million dollars per occurrence limit. However, the payout of each exceeded limit can be increased and this drives up the cost of commercial coverage.
Speak to a Fullsteam Advisor today and learn more about coverage, pricing, and the process to get quotes.
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