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Business insurance is the best way to protect the business you worked so hard to build. Making sure you have adequate insurance coverage can help your business comply with state laws, reduce risks, build a credible reputation, and replace or repair your assets. But just like every other business decision, choosing the right insurance policy can be a confusing process.
In this article, we explore the ins and outs of business owner insurance policies and why choosing the right policy is imperative.
What is a business owner insurance policy?
Many entrepreneurs believe that purchasing a general liability policy or umbrella insurance from a local insurance agent is enough coverage for their business. They are incorrect. While general liability coverage is important, it will only cover third-party losses caused by your business. A smarter and more cost-effective way to get coverage for your small business is to purchase a package of insurance policies called a business ownerâs policy (BOP).
An ownerâs policy provides small business owners with business insurance coverage of three separate insurance policies in one easy-to-understand policy. The types of insurance covered in a BOP are general liability, property insurance, and business interruption coverage.
General liability insurance
Liability insurance products protect small businesses from third-party claims of property damage, bodily harm, or injury. This insurance covers the costs associated with litigation, bonds, settlements, and judgments posted by the courts following damage to another person or property. If you run your business out of a leased office or retail space, expect your landlord or property owner to require general business liability insurance.
Business property insurance
Commercial property insurance, which is similar to homeowners insurance, is designed to protect your business from property damage losses to your building, office, store, tools, and equipment. The types of losses covered by property coverage include fire, wind, burglary, and lightning. If you have a commercial real estate loan or another small business loan, the lender will require that you keep an updated property insurance policy.
Business interruption insurance
Business interruption insurance is protection for the business owner in the event that the business has to close or significantly reduce operations following damage from certain natural disasters, vandalism, or theft. The interruption insurance provides reimbursements for missed revenues during the recovery period. Having interruption coverage is important for business owners that have recurring operating expenses.
What type of businesses need to have a business ownerâs policy?
Business owner policies are designed for small businesses that employ 100 or fewer people and have annual revenues of less than $5 million. If your small business operates remotely or online, you will need a BOP if you have any business assets, including equipment, inventory, or software. If you run your business from a brick-and-mortar location, a BOP will offer liability coverage as well as protect the property you operate from.
Small businesses in the following industries typically benefit from a business ownerâs policy:
- Retail stores
- Restaurants and cafes
- General contractors
- Warehouses and industrial locations
- Handyman service providers
- Convenience stores
- Property managers and landlords
What types of businesses should not purchase a BOP?
A business ownerâs policy is the right choice for several types of businesses, but the insurance industry is not âone size fits all.â Most insurance agents will work with different types of businesses and be able to recommend the best combination of insurance policies, and there are some circumstances where a BOP is not the best package. These types of businesses have additional or unique risks that will not be covered by a BOP:
- Financial institutions
- Bars and lounges
- Manufacturing companies
- Car dealers and repair shops
- Amusement parks and carnival operators
What is not covered by an ownerâs policy?
All insurance policies come with exclusions. While the business ownerâs policy covers a lot because it combines property, liability claims, and lost income into one package, typical BOPs do not provide protection from:
- Damage caused by pollution or nuclear hazards
- Explosions caused by equipment
- Decay, rust, and corrosion
- Losses resulting from military action
- Business interruptions caused by ordinance of the law
What other types of insurance does your business need?
As a small business owner, itâs natural to want the best insurance available for every phase of your business plan. If you have just launched a startup company or purchased a new business or franchise, the business ownerâs policy is a great place to start. However, as your business grows and evolves there may be some other types of insurance coverage youâll want to explore.
Workersâ Compensation Insurance
If you have employees at your business, youâll need to purchase a workers compensation policy. Workersâ compensation insurance covers the salaries, health insurance, and medical expenses of anyone that suffers an injury or illness because of the job. Businesses operating in most U.S. states are required to carry this type of coverage.
If your business owns company vehicles, you may want to consider purchasing a commercial auto insurance policy. A business auto policy will offer liability coverage as well as physical damage to cars, trucks, and vans used to run your company. The car insurance youâve already got for your personal vehicle will not cover your car if you are using it for business purposes, but commercial auto insurance covers business vehicles even if theyâre being used for personal reasons.
Small business owners often assume their property insurance will cover damages caused by a flood, but this is not often the case. Depending on the geographical location of your business, you may want to invest in flood insurance. This type of coverage will cover the repairs necessary after water damage from rain, snow, storms, storm drains, or dam failure.
Professional liability insurance covers small business owners against litigation or damages caused because of the businessâs instruction or suggestion. Typical coverage includes negligence, product liability, copyright infringement, bodily injury, and more. This type of liability policy is right for business owners that provide professional services, advise clients, or operate via service contracts.
Cyber liability insurance is a type of policy that protects the business from losses incurred because of a cyber data breach. Any business that has computer systems or software can benefit from a cyber liability insurance policy, especially if the business collects or stores sensitive information like customer credit card details, Social Security numbers, health care records, and identification numbers.
Like professional liability policies or errors and omissions insurance (E&O), Director and Officerâs (D&O) insurance coverage protects the business from damage caused by managerial decisions. D&O policies cover failure to comply with workplace regulations, bankruptcy losses, breaches of fiduciary duty, misappropriation of funds, and misrepresentation of the businessâs assets.
Employment practices liability
Another type of insurance designed to protect the business owner is employment practices liability (EPL) insurance. This type of policy covers financial losses incurred by employee claims of harassment, wrongful termination, or discrimination.
How to get and compare insurance policy quotes
Just like any other business investment, purchasing an insurance policy requires some effort if you want to get the most comprehensive and cost-effective coverage. The journey to full coverage typically starts with requesting quotes, or price estimates that detail the benefits and limitations of each insurance policy. There are several ways to request quotes, and which one you choose is up to you.
Online Insurance Marketplace
Online insurance marketplaces exist to help connect customers to companies that can meet their insurance needs in a fast and efficient way. They are a great resource to collect multiple quotes in a short amount of time. The marketplaces work by gathering some basic information about the business including:
- Business income
- Number of employees
- Property details for an owned or rented workspace
- Previous insurance claims
The marketplace can then either provide instant quotes from insurance companies they partner with or connect you to multiple insurance agents for more information and customized quotes.
Working with an insurance agent or insurance broker is the most popular method of obtaining small business insurance. Agents are licensed professionals trained to work with insurance companies to provide their customers with several business insurance quotes. Some insurance agents work with just one insurance company, but others work with multiple carriers. You can find an insurance broker by performing a simple internet search or asking professional contacts for recommendations.
Another option to find the right coverage and rates is to reach out directly to the insurance companies. This is a good method for entrepreneurs that already know which insurance company they want to work with or exactly what types of policies they need. Most insurance companies, like The Hartford, offer online quotes if you go directly to their website.
How to choose the best business owner insurance policy
Once youâve put together a few insurance quotes, you should compare the quotes to find the best fit for your business needs. Here are a few of the key components you should review when selecting the right policy or the right insurance company:
Types of coverage
Business insurance policies tend to be consistent from provider to provider. However, you may notice some differences in coverage options when youâre looking at policy bundles, like the BOP. For example, some insurance companies include business interruption insurance as part of the business ownerâs policy, and some consider it as additional coverage. If you have a lender, landlord, or other agency requiring that your business is insured, consider those policy requirements when comparing coverages.
Insurance policies are effective for one year at a time, so youâll want to be comfortable with the insurance company youâve chosen before purchasing a policy. Insurance agents and insurance providers are in the service business, so looking at online reviews is a great way to learn if other customers have been satisfied with their service and coverage. Some great resources for comparing insurance companies based on reputation include J.D. Power surveys, AM Best, and the National Association of Insurance Commissioners.
Each quote you receive from an insurance company or agent should clearly list the price of the policy. The prices are called premiums and are most often paid for the entire upcoming year or through monthly installments. While understanding how much the policy will cost seems straightforward, there are some other factors to consider that may affect the total business insurance cost, including:
- Coverage limits â The coverage limit is the maximum amount the company will pay out for a claim. Youâll want to be sure it meets your business needs and that you keep these limits in mind when comparing prices.
- Deductible â A policy with higher deductibles may have a lower premium, but it is important to understand that if you need to file an insurance claim it will have a higher out-of-pocket cost.
- Discounts â If youâre interested in multiple policies, or a policy package, you may want to reach out to the insurance company and ask if they offer any discounts for bundling.
A business ownerâs policy, or BOP, is one of several types of business insurance recommended by Biz2Credit for small business owners. The BOP bundles property insurance, general liability coverage, and business interruption insurance into one policy with one premium. Most businesses will need to add additional coverage, like workersâ compensation or flood insurance. To find the right insurance policy, start by requesting a few quotes and comparing coverages, reputation, and price.