Business Owners Policy (BOP)
Last Updated: March 31, 2017
What Is a BOP Insurance Policy?
If you own a small or medium-sized business (SMB) in New York or New Jersey and are looking for insurance, you may be confused about the myriad policy options and regulations in your state. To keep things simple and cost-effective, you can get a Business Owner's Policy (BOP), which is specifically designed for SMBs (i.e., companies with fewer than one hundred employees and less than five million dollars in revenue).
BOPs combine general liability insurance and property insurance into a single policy with a single premium that is typically lower than it would be if you were to purchase each type of insurance separately. If your business has additional or unique coverage needs, a Commercial Package Policy (CPP) might be a better fit.
Business Owners Policy vs. Commercial Package Policy
Both types of policies are "package" deals, but a BOP automatically includes the basic coverages that most businesses need, whereas a CPP can be thought of as "à la carte" coverage that is customizable according to your industry or other circumstances. A software company, for example, would have different liability exposures than a bicycle repair shop.
What Does a Business Owners Policy Cover?Open or Close
In general, a BOP includes only property and liability insurance. Other coverages may be added if needed or desired.
This protects your business against claims of property damage, bodily injury, or a lawsuit arising from an accident that caused bodily injury. It also protects your company from claims such as libel, slander, and false advertising, even if those claims have no merit. The policy covers defense costs, as well as any damages (up to the policy limits) that must be paid if your business doesn't win the lawsuit. In addition to damages, you're also covered for any medical expenses incurred by those who were injured, except employees, as a result of your business activities.
A comprehensive property insurance policy will cover not just your building and land, but also what is referred to as Business Personal Property (BPP). BPP consists of almost any valuable, non-real property, such as office furnishings, tools, appliances, equipment, and even the artwork on the walls. BPP also includes mobile equipment (e.g., a forklift) that is used on the premises but not on public roads.
A BOP usually insures lost or damaged property for the replacement cost, as opposed to the actual cash value, in which the property's depreciation would be subtracted from its replacement cost. Our Commercial Property Insurance page discusses the difference between these valuation methods in more detail.
One of the limitations of BPP coverage is that it applies only to items that are on the business premises or within a designated radius of the building. If your business requires you to travel off-site, then any equipment or inventory that you bring with you will not be covered unless you have an Inland Marine provision in your BOP or CPP.
Electronic Data Processing (EDP)
EDP refers to computers, software, data, and the media on which data are stored. Generally, this type of coverage has its own limit that is separate from the Business Personal Property limit and applies to both on-premises and off-premises items. Computers, laptops, tablets, PDAs, and smartphones are usually covered worldwide up to the policy limit.
Targeted Cyber Attack
If your business is specifically targeted in a cyber attack, then this type of policy will cover direct damage and Business Income up to the policy limit.
Due to inflation, the replacement cost of your property is likely to go up with each passing year. The Inflation Guard endorsement of a BOP automatically increases the coverage limits of your Building and Business Personal Property according to the annual rate of inflation in your geographic area.
Business Income and Extra Expense
If your business operations are suspended due to the destruction of or damage to your property, Business Income insurance will pay for the actual loss of income that you experienced as a result of this event. In the context of insurance, "business income" refers to your net income and continuing normal operating expenses, including payroll. The policy covers your business income for up to 12 months with the option to increase the coverage to 24 months.
Extra Expense insurance pertains to the necessary expenses that are incurred during the time that your business operations are being restored after an event that results in a direct physical loss of business property. To be eligible for coverage, they must be expenses that you would not have incurred otherwise. Coverage is generally included at a $10,000 limit with the option of increasing the limit to $1,000,000 if necessary.
Extended Business Income
While Business Income and Extra Expense policies are great for helping you rebuild or replace physically damaged property, they don't account for the intangible consequences of business interruption. Your facility might be repaired and open for business, but the downtime may have caused existing or would-be customers to seek alternative products or services that they now prefer.
Insurers understand that regaining those customers and acquiring new ones won't happen overnight. Therefore, Extended Business Income coverage is available so that you can get back up and running within a reasonable time frame and to the level that would allow you to generate the amount of Business Income that would have existed if no direct physical loss or damage had occurred. Coverage begins on the date that the property is actually repaired, rebuilt, or replaced and operations are resumed.
Employees at SMBs are often treated like family, and thus business owners have a difficult time believing that their loyal, hardworking staff would steal from them. Unfortunately, a lot fraudulent activity goes unnoticed precisely because it is skillfully concealed by loyal, hardworking individuals. Another reason that such employees are able to fly under the radar is that SMBs often don't have the resources or technical know-how to put systems into place that can detect or deter theft, embezzlement, and other criminal activities.
The bottom line is that every business owner who hires help is vulnerable to the threat of employee dishonesty. In fact, a study conducted by Kessler International, a forensic accounting firm, revealed that 79% of employees steal from their employers. Theft of money, securities, or property is covered under Employee Dishonesty insurance, and coverage is usually included at a limit with the option to increase it up to $1,000,000.
How Much Does a Business Owners Policy Cost?
It's not uncommon for SMBs to pay just a few hundred dollars per year for a BOP, but it's important to keep in mind that every business is unique in some way, and your insurance premium is calculated based on not only the types of coverages that you need, but also your company's risk profile. Here are some of the factors that underwriters consider when determining your BOP insurance cost:
- Type of business
- Replacement cost or actual cash value of the building and other assets
- Number of employees
- Payroll paid to employees
- Gross sales