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Your Business Owner's Policy: What's in the Fine Print
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Your Business Owner's Policy: What's in the Fine Print
For small businesses (typically under 100 employees and less than $5 million in annual sales), basic insurance coverage is in the form of a business owne;s policy, referred to in the insurance industry as a BOP. It provides property protection for your business equipment and premises in the case of damage, destruction, or theft. Like a general liability policy, it also includes liability protection when third parties are injured on your premises. It may include other types of coverage for your business.
BOPs vary greatly from one insurance company to another, and yo-ll want a policy tha-s tailored to your specific business needs and your pocketbook. Here are some aspects of the policy to understand so you can obtain the best coverage for your business.
Definition of property coverage
When you have an item stolen or destroyed, what can you expect to receive under your policy? It depends on the terms of coverage in the policy.
- Replacement cost
- Actual value (replacement cost less depreciation'you receive only what the item is worth at the time of loss or destruction, which may be considerably less than what yo'll have to pay for a replacement.
What is not covered by your policy? These are referred to as exclusions, and can include losses from flood damage, riots and acts of terrorism, or other specified events.
If you want coverage for excluded events, you can get it (other than for'acts of Go'). You may need a separate policy (e.g., for coverage for flood damage) or a rider on your BOP for other events.
BOPs do not include coverage for:
- Business vehicles. Yo'll need fleet insurance if your company has cars and trucks.
- Worke's compensation. Yo'll need separate coverage for your staff.
- Employer liability. You can get protection from actions such as sexual harassment and wrongful termination only by having an employer liability policy for these types of occurrences.
- Errors and omissions. Professional liability coverage (malpractice insurance) is not part of a BOP; you'll need a separate policy for coverage from errors and omissions arising from your work.
The BOP always provides coverage for third-party injuries on your site. What about other liabilities that can arise from your business operations? Check whether you have coverage for:
- Off-site liability. If, for example, you are at a trade show and someone is injured in your booth, do you have coverage?
- Product/operations liability. If someone is injured by your product or because of faults in the work you performed, are you protected?
- Personal-type liability. Are you covered for injuries from defamation (libel or slander), invasion of privacy, false advertising, or other personal injuries?
- Host liquor liability. If you serve alcohol on your premises, such as at a company holiday bash, make sure to have coverage if someone is injured because of the consumption at your company.
If a catastrophe shuts you down”there's a fire, a storm, or other major event”and you can't operate remotely, how will you pay your bills? Your BOP can include coverage for business interruption so you can continue to pay your employees, your rent, and other overhead costs. The coverage (also referred to as continuation coverage) may pay for operating from an alternate location (e.g., renting temporary office space) and may even make up any lost profits during this period.
If you operate from home, don't assume your homeowner's policy provides adequate protection. It may not cover losses to your business equipment or inventory in your home; it may not provide protection if a business customer or client is injured in your home.
You may be able to modify your homeowner's policy to cover business equipment and business visitors by including a rider. Or you may want to buy a BOP to provide greater coverage.
Buying and updating your BOP
It's wise to obtain a policy even before your open your doors for business; things can happen at any time. Meet with a knowledgeable insurance agent to discuss your particular needs. It's axiomatic that the more coverage you have, the higher your premiums, so work with your agent to find ways to have adequate coverage that you can afford. For example, you may reduce costs by installing fire alarms and taking other safety measures.
Even if you already have a BOP, be sure to review your coverage on a regular basis (at least annually). Your needs may change and you'll want your policy to keep up with your business growth. Keep your agent in the loop so he or she can advise you when your policy should be expanded.
Learn more about BOPs from:
- American Family Business Accelerator Series
- *Insure U for Small Business
* Denotes use of hyperlink directing readers to non-government Web sites.
Barbara Weltman is an attorney, author of several business books including J.K. Lasser's Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and her monthly e-newsletter Big Ideas for Small Business®; both are available at www.barbaraweltman.com, and host of Build Your Business Radio. Follow her on Twitter at twitter.com/BarbaraWeltman.
About the Author:
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BarbaraWeltman.