Do you own a small business? I know you’ve been spending a lot of time, energy, and money since day one to get your small venture up and running. You have a great location, pieces of equipment, and a great team, working their butts off to meet your business’ overall goals. You have happy customers, and you’re starting to get an online buzz.
The question is, do you have the right type of insurance to protect you and your business from possible catastrophes?
If you’re a small business owner, you may be familiar with a business owner’s policy (BOP). A BOP is an insurance policy bundle, combining protection against a range of risks, from damage to equipment and assets to legal liability. These types of coverage are designed to protect business owners against property damage, liability, and loss of income resulting from the business interruption.
If you’re thinking of getting this insurance policy for your business, here are 7 things you need to know.
1. What are the policies included in the package?
A BOP includes commercial property insurance, general liability insurance, and business interruption insurance. The broad insurance package is usually sold at a premium that’s cheaper than the total cost of the individual coverages.
- Commercial property insurance. The property insurance section of a BOP covers buildings, including machinery and equipment installed, and business-owned items located in the covered building. It provides coverage for the damages caused by perils specifically listed in the policy, like fire, explosion, vandalism, theft, and wind damage.
- Commercial general liability insurance. Commercial general liability (CGL) covers the insured’s legal responsibility for the injuries or damages inflicted on a third party in the normal course of business operations. It can be a bodily injury or property damage due to a faulty product and any errors in the services provided.
- Business interruption insurance. This type of insurance covers the loss of income as a result of disrupted business operations. It may also cover the extra costs of operating out of a temporary business location.
2. What are the crucial policies excluded from the package?
A standard BOP does not include auto insurance, worker’s compensation, professional liability, and health and disability insurance. If you think your business needs something that’s not provided by your existing policy, discuss with your insurer how you can add them to your bundle.
3. Can a BOP be customized?
Yes. You and your insurer can make special arrangements depending on your business’ needs. Many different additions called “endorsements” can be bundled into your BOP to provide your business with more comprehensive coverage.
Some endorsements include professional liability (errors & omissions), commercial crime Insurance, spoiled merchandise, and data breach, vehicle coverage, and flood insurance. An insurance broker in New Zealand, for example, includes computer electronic equipment insurance, covering for loss or damage to the devices.
4. Who needs a BOP?
The package policy is targeted to small and medium-sized businesses. Small, low-risk businesses including retail stores selling either goods and services, restaurants, office buildings, apartment buildings, and business or technology consultants may qualify for a BOP.
5. How eligible am I for a BOP?
Insurance providers determine if your business qualifies for the policy based on the size of your business location, size of your company, revenue, and nature of your operations.
Generally, you should meet the following requirements:
- Your business is not home-based
- Most of the business operations should be conducted on your business premises.
- You operate in a low-risk industry
- You have fewer than 100 employees
- You have a small office and workplace.
- You meet the sales thresholds required by your insurance company.
Not all businesses are eligible for a BOP. Due to the size and nature of their businesses, auto dealers, high-rise buildings and auto repair shops, tree trimmers, theaters, and banks to name a few aren’t qualified.
6. What is the difference between named peril and open-peril (all-risk) coverage?
A named-peril insurance policy covers only what’s specifically stated in the policy. For instance, if your policy doesn’t state you are covered for theft, then you are not.
An “all-risk” or open peril policy, on the other hand, covers everything UNLESS it’s explicitly excluded in the policy. Since it’s more comprehensive, it’s more expensive than a named-peril policy. If you purchase a special BOP rather than the standard type, you may be offered an open-peril (all-risk) coverage.
7. Is business insurance mandatory?
Yes and No. Most insurance types are optional but are highly recommended. It’s like life insurance: it’s necessary but you may disregard it at your own risk.
Some types of business insurance designed for people working for you, however, are required by the law. These include worker’s compensation and disability insurance.
Check with your local business bureau and government. Then, consult an insurance adviser to learn more about the business insurance requirements you need to comply with.
Author Bio: Carmina Natividad is one of the daytime writers for Insurance Advisernet NZ, one of the largest and most reliable insurance brokers in New Zealand, providing high-quality risk management advice for business owners. She enjoys writing practical tips and tricks, making complex finance and business topics easier to digest.