- Updated April 12, 2023
A business owner's policy (BOP) is a type of business insurance policy that bundles together multiple coverages based on the needs of a particular business. Typically, these coverages include general liability and commercial property insurance. However, they may also include professional liability, business interruption insurance, and other coverages a business needs.
By bundling together multiple coverages in a single policy, small business owners can save money and get better customer service by having everything through a single provider.
Almost any small business is eligible for coverage through a BOP. Even sole proprietors without separate tax IDs for their companies can usually find coverage through this type of policy. Usually, the only exceptions are businesses that operate in specific industries that insurance companies can't cover. These may include high-risk activities such as manufacturing firearms, operating a casino, or producing, processing, or selling cannabis.
Every small business that owns property, produces revenue, or deals with the public should have small business insurance to protect their income and guard against liability. Business owners can buy this coverage either as individual policies or as a single business owner's policy, which provides comprehensive coverage at a lower cost than buying separate policies for each coverage.
While some businesses may be ineligible for a BOP, these same businesses may have trouble securing coverage through individual policies. And while BOPs can provide businesses with solid baseline coverage, some companies may need additional coverage not included in a BOP.
If you do buy coverage through a BOP, review your coverage types and amounts at least once a year to ensure it still meets your needs. You may also need to revise your policy if you experience a major change in your business. Common situations include relocating, hiring new employees, or adding new lines of business.
A business owner's policy provides numerous types of insurance coverage for small businesses. The specific types of coverage vary by policy, but BOPs typically cover general liability and commercial property damage—though many include business interruption insurance and sometimes other coverages.
These are some of the major coverage types included in BOPs:
General liability insurance is the most common type of small business coverage. It protects a business from liabilities resulting from a business' interactions with the public—such as if someone slips, falls, and gets hurt in your store—as well as legal bills tied to that liability. This type of insurance can help pay for costs stemming from damages for which your business is held liable, such as medical expenses, damage to someone else's property, or legal fees.
All businesses, no matter what size or type, should carry some amount of general liability insurance. When choosing a general liability policy, read the fine print and understand what is and is not covered, coverage limits, deductibles, and other specifics.
Commercial property coverage is insurance that protects the value of your business property if something happens, such as if a tree falls on your building and damages the roof. Stated another way—commercial property insurance helps cover the cost of repairing or replacing property that is damaged due to no fault of your own.
All businesses that own or lease equipment or facilities used in their normal course of business should carry some form of commercial property insurance to protect their physical assets in the event of a loss. This type of insurance helps pay to repair or place damaged property and may provide businesses with temporary facilities or equipment while theirs are repaired. Businesses at a higher risk for property damage, such as those operating in a high-risk area or with valuable equipment, should consider purchasing a more comprehensive policy that includes coverage for theft and vandalism.
Business interruption insurance (sometimes called business continuation insurance) insures a business against losses related to a temporary interruption in operations. This coverage reimburses you for expenses like rent, utilities, and payroll if your business must close due to a covered event. Some policies even insure businesses against lost profits and can help companies to cover their fixed costs while they're shut down—as well as costs associated with getting back online.
If a disaster affects a supplier, for example, and a business is forced to close temporarily, business interruption insurance can cover the company's fixed costs during closure. Coverage can also cover costs associated with retooling to use a different supplier.
BOPs include a combination of coverages based on the specific needs of an individual business and the types of policies the owners choose to include. However, unless specifically included, BOPs usually exclude coverage for professional liability, commercial auto insurance, workers' compensation, and health insurance. Most BOPs also exclude coverage for flood damage, earthquake damage, and mold. You can purchase separate policies to cover these risks or add them to your BOP as endorsements.
BOPs do not protect business owners' personal property or guard against liabilities incurred when a business owner is engaged in non-commercial activity. Lastly, these policies generally do not insure businesses against losses resulting from the negligence or malfeasance of business owners or employees.
The cost of a business owner's policy varies depending on the location, size, and type of business, as well as the industry and the types and amounts of coverage needed. Insurance companies also consider factors like a business owner's claims history and credit. Most small businesses can expect to pay between $500 and $2,500 per year for a BOP.
Professional liability insurance, also known as errors and omissions insurance, protects a business from damages caused to clients that result from work the business performed. Typically, these damages take the form of lawsuits alleging a business provided negligent or poor-quality services. In these cases, professional liability insurance can cover the cost of the damages, as well as legal fees incurred in defending a potential lawsuit.
If your business provides clients legal, medical, financial, consulting, or other services, you should have professional liability coverage.
Business equipment insurance is coverage that helps business owners cover the costs of repairing or replacing business tools and equipment if they're damaged or destroyed by a covered event. This type of insurance typically covers things like computers, office furniture, and tools, as well as heavy equipment that may be used by agricultural, construction, or industrial companies.
Business equipment protection is a less common type of insurance that is only used by businesses that own or lease large, complicated, or expensive equipment used in the course of normal operations. Businesses that typically need this type of coverage include those with expensive equipment, such as construction companies, call centers, and auto repair shops.
Workers' compensation insurance protects employers who get sick or injured while on the job. This type of insurance is required in most states if you have employees and covers the cost of medical care and income replacement for employees who have to miss work due to the injury or illness.
Most states require businesses to carry workers' compensation insurance if they have three or more employees. Businesses with fewer than three employees may be exempt from this requirement but may still benefit from workers' compensation insurance. Even self-employed individuals can buy workers' comp coverage to protect themselves.
Cyber liability insurance covers the cost of responding to a data breach, such as notifying affected individuals and providing credit monitoring services. This type of policy is critical if you store sensitive information, such as customer credit card numbers or social security numbers.
If you use vehicles for business purposes, you'll need commercial automobile insurance. This type of insurance covers the cost of damage to vehicles used for business. It can also provide liability coverage if an accident caused by a business-owned vehicle results in injuries or property damage. Most people don't realize it, but personal auto insurance doesn't protect business owners or employees who use their personal vehicles for business purposes. So, commercial auto coverage is important if you or your employees drive for work (other than to commute).
Key person insurance is a type of life insurance that protects key owners, managers, or employees in a business. The policy can sometimes be included in a BOP and protects the business in case a key team member dies or becomes disabled and is unable to continue working. In that case, the policy helps to make up financial impacts that can result from losing a key contributor.
If you have large trailers or other expensive equipment that you regularly transport between job sites, inland marine insurance is a must. This is also true for businesses that transport or deliver goods for customers. Inland marine protects goods or equipment while in transit, such as stereo equipment in a trailer or goods being delivered to a customer. Suppose you're transporting expensive equipment and get in an accident. In that case, your losses may exceed coverage limits for commercial auto, so inland marine provides additional protection.
The laws and regulations around having employees are numerous. Employees have rights, and employers are responsible for ensuring those rights aren't violated, including by managers. Businesses with a lot of employees‚even hourly workers with high turnover—often use EPLI to help protect themselves against potential liabilities that can arise from employing so many people.
Directors and officers (D&O) coverage is very common among non-profit boards of directors. However, it can also be used by for-profit companies—especially those with independent directors. D&O coverage helps protect the directors of a company against liabilities that can arise from decisions they make in the course of steering a business.
In addition to common coverages used across industries, some business owners may need industry-specific insurance coverage to protect their business more fully. For example, a furniture store may need product liability insurance to cover the cost of damages if a piece of furniture manufactured or sold by the store is defective and causes injuries. A roofing contractor may need special insurance to cover the cost of damage caused by falling debris.
The best way to determine what coverages you need—beyond the basics—is to speak with a business insurance agent or broker who can assess your specific risks and recommend the right policies. These professionals can help you understand what risks you face, the potential damages that could result from various events, and the value of your insurable interests. They can also help you monitor changing needs over time so that you can update policy types and coverage limits from year to year.
A package policy is a custom insurance policy that includes several different types of coverage with various coverage amounts, covered events, deductibles, and so on. A business owner's policy is a type of package policy that is specifically designed for small businesses. BOPs typically include general liability insurance, commercial property insurance, and other common coverages, though they may also include more niche coverages based on the particular needs of a business.
Small business insurance is a type of insurance that is specifically designed to protect small companies and self-employed individuals in the course of their business operations. Small business insurance can cover a variety of risks, including liability, commercial property damage, and workers' compensation.
An LLC, or limited liability company, is a type of business structure that offers personal liability protection to its owners. This means that if the LLC is sued, the owners will not be held personally liable for any damages. However, an LLC still needs to purchase small business insurance to protect the business itself from risks such as property damage and liability.
When starting a small business, you'll need to purchase insurance to protect your business from a variety of risks. The type of insurance necessary ultimately depends on the size and type of business, as well as the location and industry. Some common types of small business insurance include general liability insurance, commercial property coverage, workers' compensation insurance, and commercial auto insurance.