Understanding Your Business Owners' Policy

What exactly is a Business Owners’ Policy?


Getting insurance coverage for businesses used to be a very involved process; brokers and agents had to go through piles of paperwork and decide which coverages needed to be applied with what limits. This process was the same (to a certain extent) no matter what type of business was trying to find coverage and the same amount of time and resources were spent trying to find coverage for a $1 million company as were spent trying to find coverage for a $1 billion company. With that process in place, brokers and agents stopped pursuing smaller accounts with the rationale that if they were going to do the same amount of work, they might as well go after companies that would provide them with a larger commission. So, insurance carriers came out with a “pre-packaged” insurance product called the Business Owner’s Policy (commonly referred to as a “BOP”). This product was geared towards smaller businesses with less than $15 million in revenue, in order to help them find coverage that was both sufficient and easy to implement. 


A BOP combines the two most crucial insurance coverages for businesses: general liability insurance and property insurance. Thus with one simple policy, businesses are protected against fire, theft, lawsuits and many other exposures. Different insurance carriers may add certain coverages or restructure their product in order to attract certain industries (i.e. retail stores), but these two coverages make up the backbone of the modern BOP.



Business Property Coverage


The property section of your BOP explains the coverages for both your Buildings (Coverage A) and your Business Personal Property (Coverage B). The policy limits will be described on the Declarations Page, as well as the properties that are covered. 


Coverage A: protects the buildings and structures described in the declarations section. It also protects completed additions, permanently installed indoor and outdoor fixtures, personal property furnished by you as landlord, and equipment used for service or maintenance of the buildings or premises. It may also include additions under construction and costs associated with building alterations or repairs. (note: you don't need this coverage if you're a tenant in someone else's building.)


Coverage B: includes property owned by you and used in your business operations. Your property is generally covered if it's in or on the described buildings, or within 100 feet of your business premises while in a vehicle or out in the open. You're also covered for the property of others while it's in your care, custody, or control (up to your legal liability, plus the costs of your labor, materials, and services).



Business Liability Coverage


The second part of your BOP is Liability Insurance. Liability protection is crucial for business owners, as today’s customer is very quick to bring any perceived injustice or service failures to arena of the court system. The Liability portion of your BOP commonly includes General Liability Coverage as well as Medical Expense Coverage.


Business liability coverage: is what many people refer to as “general liability” coverage. It protects you against lawsuits in which you're legally liable for bodily injury, property damage, personal injury, or advertising injury. It also protects you from lawsuits that arise claiming problems with your products or any completed work that you have done.


Medical expense coverage: covers medical expenses for bodily injury caused by an accident on premises that you own or rent, or by an accident that results from your business operations. The purpose of this coverage is to provide reimbursement for medical expenses, without question of negligence, in order to avoid the lawsuit process (where lawyer and court fees will typically be much larger than just paying for the medical bills).



Other options to consider for your BOP.


In addition to the major coverages described, the standard BOP provides some coverage for extra items such as debris removal, fire department service charges, pollutant cleanup and removal, and damage caused by water or other substances. Also, some forms let you extend your existing property coverage to apply to personal property at newly acquired premises, personal property off premises, outdoor property, and valuable papers and records.


But what if you want to add coverage for specific perils or property items that aren't part of your basic BOP package? Most forms will offer a number of optional coverages that you can purchase if you need the extra protection (i.e. coverage for mechanical breakdown or for your outdoor signs and glass). Other optional coverages require that you add endorsements (amendments) to your existing policy. 


As always, different insurance companies will increase or reduce certain coverages in order to compete in certain industries. It is important that you go through your policy with your agent or broker in order to make sure that every aspect of your business is adequately covered and there will be no surprises in the event of a loss or accident.

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