Business Owner’s Policy: How BOP Insurance Works

Prepackaged first aid kits are popular for a reason. They typically cost less than homemade versions, require no assembly, and eliminate the labor of deciding what to include.

Think of a business owner’s policy as the ready-made first aid kit of the business insurance world. These insurance packages are specifically designed for owners of small and mid-size businesses and typically are offered at a reduced rate. Learn more about these policies and whether they might be right for your business.

What is a business owner’s policy (BOP)?

A business owner’s policy (BOP) is a type of small business insurance that bundles multiple types of coverage into a single insurance package. These packages often offer coverage at a lower rate than if you purchased the policies separately. Business owner’s policies generally are available only to small and mid-size businesses in lower-risk industries, such as food service, retail, and manufacturing.

What does a business owner’s policy typically cover? 

Think of a business owner’s policy as an all-in-one—or most-in-one—defense against common lawsuits and property damage. Policies differ across providers, with different insurance companies offering different coverage limits, exclusions, and rates. The specifics vary based on your company’s needs and the insurance company’s offerings, but most business owner’s insurance policies include:

• Property damage. Commercial property insurance covers damage to commercial properties like offices or storefronts due to fire, accidents, natural disasters, or vandalism. Property coverage can also compensate business owners for damage to business equipment or inventory.

• Legal liability. General liability insurance covers damage a business causes to non-employees or non-business property during normal business operations. General liability protection can cover bodily injury, property damage, and personal and advertising injury (like claims of libel or wrongful prosecution). In case of a covered incident, the insurance provider may pay for the injured party’s medical expenses, compensate business owners for costs related to property damage, and pay legal fees incurred as the result of a liability claim.

• Business interruption. Business interruption insurance, frequently included in a business owner’s policy, can cover damage due an incident on commercial property, and replace income lost as the result.

Many insurance providers also offer policy add-ons, a common method for customizing a business owner’s policy to meet your business’s specific needs. Here are a few policies you can include in your BOP, or that may already be included in your policy:

• Employment practices liability insurance. This can compensate employers for costs related to an unlawful termination or discrimination lawsuit.

• Cyber liability insurance. This compensates businesses for expenses related to cyber attacks, including data breaches and ransomware.

• Flood insurance. Many business owner’s policies exclude property damage resulting from floods from their basic plans, but allow business owners to add it for an additional fee.

• Workers’ compensation insurance. Many states require businesses to carry workers’ compensation insurance, which isn’t included in a standard business owner’s policy. Some providers do offer it as a policy add-on. 

• Professional liability insurance. Also known as errors and omissions (E&O) coverage, professional liability insurance offers financial protection for negligence claims pertaining to professional services. Professional liability insurance typically is not offered as part of a standard business owner’s policy.

• Commercial auto insurance. Commercial auto insurance provides liability coverage and coverage for damage to business vehicles, and usually is not offered under a business owner’s policy.

Take note that different insurance providers set different parameters around policy add-ons. For example, while some small business insurance companies offer workers’ compensation insurance as an add-on to a BOP, other providers require a separate policy for this coverage.

How does a BOP work?

Not all businesses are eligible for BOP insurance.

“A business owner’s policy is for smaller companies, typically with fewer than 100 employees, a small workplace, and $1 million to $2 million in annual revenue,” says Lynne McChristian, senior instructor of finance at the University of Illinois Urbana-Champaign and director of the Office of Risk Management and Insurance Research.

Small businesses that qualify for a business owner’s policy usually operate in lower-risk industries, have a brick-and-mortar location, and require less than one year of business interruption insurance.

A BOP may be a good fit if you work from an office or sell products from a storefront, but remember that it may not be the only insurance policy you need (since policy add-ons may need to fill any gaps in coverage). For example, if you have vehicles, you need to purchase ​​commercial auto insurance separately. If you have employees, you still need workers’ compensation insurance. A BOP isn’t necessarily a one-stop insurance solution.

Which businesses should obtain a BOP?

BOP insurance packages are tailored to the needs of small and mid-size business owners. Many small businesses can benefit from coverage, including:

• Businesses with vulnerable assets. Businesses that operate on a property or have assets that can be damaged or stolen may benefit from business property insurance under a business owner’s plan.

• Businesses with legal liabilities. Businesses at risk of a lawsuit related to customer or third-party injury can benefit from a BOP’s general liability coverage provisions.

• Businesses that cannot sustain themselves through interruptions. Business owners who rely on business income to pay their bills can benefit from business interruption insurance under a BOP.

For businesses that require a smaller scope of coverage—for example, a remote consulting business that operates with few tangible assets—a BOP may or may not offer a better value than separately purchasing coverages. Obtaining multiple quote types can help you identify the insurance package that best fits your needs.

How to obtain a BOP

Although BOPs are insurance packages, finding a suitable BOP for your business involves the same steps as purchasing an individual insurance policy. To obtain BOP insurance, assemble basic information about your business (such as your annual revenue and number of employees). Then contact an insurance broker or insurance company, or consult an online insurance marketplace to determine eligibility and assemble a quote.

To identify the best package, many business owners solicit quotes from multiple insurance companies and compare coverage types, insurance rates, and policy add-on options.