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Understanding Your Insurance Needs — A Guide for Business Owners

Carrie Ovrid - Dec 18, 2020 9:21:00 AM

What you'll learn from this guide:

office building

As a business owner, you want peace of mind knowing your risks are covered by an insurance policy. However, business owners insurance can be confusing, even for an experienced business owner. The good news is that you can customize a Business Owners Policy to meet all of your needs.

A Business Owners Policy (BOP) can cover things like replacement of business property from fire and burglary, but also includes coverages for general liability and business interruption losses. By packaging the coverages under a BOP policy, it is generally more cost-effective than purchasing all the different types of coverage separately.

Since a Business Owners Policy is designed for small to medium-sized businesses, eligibility is based on the type of services or operations the business offers and gross annual revenue or employee payroll. This means that companies with more than $5 million in annual revenue are not typically eligible for these coverage options. 

BOP’s typically combine three insurance policies that generally include: 

  • Property insurance that covers your building, office space, equipment, and inventory
  • Liability insurance that covers property damage or bodily injury to third parties, including damages caused by your product or service
  • Business interruption insurance that covers loss of income if your business has to shut down due to fire, wind, or other such covered losses

Why Do You Need Business Insurance?

How do you know if your business needs an owner’s insurance policy? If your business meets any of these conditions, you likely need insurance:

  • Your business has a physical location – It won’t matter where you conduct your business, only if you have a business and assets. Your BOP can cover a business run out of your home, a space you lease or rent, or from a property that you own.
  • There’s a chance you’ll get sued – Let’s say a customer slips in your workspace and is injured. Without a BOP policy, you may have to pay some hefty expenses out of pocket to cover the injured person’s medical bills.
  • You have assets that could be damaged or stolen – Whether your assets are in the form of customer data, digital assets, cash, inventory, equipment, or some other form, they can be difficult to replace if you don't have BOP coverage. With BOP insurance, you won’t have to worry about where the money will come from to replace damaged or stolen assets.

Understanding Business Owner Policies (BOP’s)

Depending on the insurance coverage you choose, your policy could protect your business from things like major financial losses or loss of property due to a fire. Just be sure to read what your policy covers entirely to understand what your coverages are and what perils are included by your insurer. Your insurance agent is a great resource for reviewing your coverages and ensuring you have the proper coverage in the event of a loss. Discuss your coverage and loss concerns with your agent, so they can formulate a BOP that meets those needs. 

Each coverage under your BOP will have a coverage limit (or the maximum amount your insurer will pay for a claim), as well as exclusions. Some insurance coverage will also come with a deductible or retention. This is the amount of money you will need to pay out of pocket towards a covered claim.

As stated before, three types of coverage are packaged into a BOP for most small business owners.

Business Property Coverage

This protects your business's building and the contents within it against covered perils, which are listed within your insurance contract. Discuss with your insurance agent the estimated cost to rebuild, replace, or repair your property for accurate coverage limits. Note that having an insufficient policy limit can result in a co-insurance penalty that you will have to pay if you didn’t purchase enough insurance coverage.

General Liability Protection

Most BOP’s include a general liability policy to protect you if a customer or visitor to your business is injured, or in the event you cause property damage to a third-party. Insurance will help pay for the injured person's medical expenses and any legal costs you incur if you are taken to court.

Business Interruption Coverage

This coverage is sometimes referred to as Business Income Coverage, as it helps replace income that may have been lost and extra expenses if your business is impacted by a covered peril such as a fire. This coverage might also pay for rent costs while the building is undergoing repairs.

In addition to these basic business insurance coverages, your business policy may also need to include the following types of additional coverage:

  • Errors and Omissions Insurance (also called Professional Liability insurance)
  • Data Compromise and Cyber Coverage
  • Commercial Auto Insurance
  • Equipment Breakdown Coverage
  • Employment Practices Liability Coverage
  • Employer’s Liability (Stop Gap)

An insurance agent will be able to advise you of the specific needs for your business and help customize a policy to meet your needs.

What Is the Right Type of Insurance for a Small Business?

When you formed your business, you may have set it up as a Limited Liability Company (LLC) or Sole Proprietorship. While this will help protect your personal property from lawsuits, the protection is limited. Typically, your personal insurance does not extend to your commercial business exposures and vice versa. Business insurance will help fill in the gaps to ensure that both your personal assets and business assets are protected from unexpected catastrophes. The right plan with the right insurance company can help ensure you are covered.

The federal government requires that all businesses with employees have workers' compensation insurance, unemployment, and disability insurance. Depending on your state regulations, you may also be required to have additional types of insurance. Below is a general breakdown of the types of insurance you and your insurance agent might need to consider for your business:

  • General Liability Insurance All businesses need this, and coverage protects the business from financial loss due to property damage, bodily injury, medical expenses, slander, libel, lawsuits, and settlement judgments.
  • Product Liability Insurance Businesses that manufacture, distribute, wholesale, or retail a product need this coverage. It protects against financial losses due to a defective product that results in bodily harm or injury.
  • Professional Liability Insurance Businesses that provide professional services to customers need this type of coverage to protect against financial losses due to errors, negligence, omissions, and malpractice.
  • Commercial Property Insurance Businesses that have physical assets, property, or stock need this coverage to protect them from loss or damage to company property due to things such as fire, wind, hail, smoke, vandalism, and civil disobedience.
  • Business Owner’s Policy If eligible, a small business should have this insurance offered as a package to combine all the typical insurance coverages a small business needs into one bundle. It simplifies the insurance buying process and helps save money.

The first step to buying a Business Owner's Policy is to assess your risk by thinking about what types of accidents, lawsuits, or natural disasters could impact your business. We know that's easier said than done! Finding a reputable, licensed agent to help protect you against the risks you face is not easy because many advisors make getting the right solution harder than it has to be. 

At Conover, we have licensed and professional agents to simplify the process for you and help you get precisely what you need. We can provide you an insurance quote from a long list of insurance companies to fit your unique needs. Once you have purchased the right BOP for you, we'll revisit your coverage each year to make sure it is still meeting the needs of your business operations. 

If you have questions about insurance coverage for your small business or would like to get a quote for a business insurance policy, contact us today.

Questions for an advisor?

Topics: Commercial Insurance- Commercial Insurance- Featured

Carrie Ovrid

Carrie Ovrid

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