According to the Small Business Association (SBA), a whopping 36% to 53% of small businesses are involved in at least one lawsuit in any given year, making it likely that you could be sued at some point. Liabilities are everywhere in the small business world. If you’re a small business owner, carrying the right insurance coverage is essential to protecting your business and personal assets.
Fire, theft and vandalism can shut down your business or require replacement of expensive equipment. A business owners policy (BOP) can protect you against all of these risks and more. It is simply a policy that provides both property and business liability insurance in one packaged policy and is designed to cover the basic needs to small to mid-sized businesses at an affordable rate.
A business owners insurance policy typically includes general liability, property coverage, and business interruption insurance rolled into one policy. Despite the dire statistics, many small business owners still buy in to some myths about business owners insurance; this can be an expensive mistake. Let’s have a look at the most common BOP insurance myths and why they are wrong:
The exact opposite is true. Business owners insurance policies are designed specifically for small businesses. A BOP insurance policy conveniently rolls property damage and business liability insurance into one policy, making full coverage very affordable.
A business owners policy also includes business interruption insurance, which compensates you for any business income you lose due to a covered peril. A major disaster can shut your business down for weeks or even months. Business interruption insurance will ensure that you survive the closure.
It’s not just disasters that can close a business. A kitchen fire can easily shutter a restaurant for weeks. The property damage portion of a BOP covers damages to the kitchen equipment, and business interruption coverage helps cover any lost income.
Nothing could be further from the truth. General liability does not protect you from property damage or business interruption, both of which can be very costly.
General liability covers acts you commit, or things that happen at your business location. If a customer slips and falls in your grocery store, or a customer gets food poisoning from a pizza served at your shop, general liability covers their medical expenses as well as any resulting lawsuits.
A general liability policy does not cover damage to your business property. The property damage portion of a BOP covers loss or damage to your physical space, equipment, inventory, machinery, furniture and supplies, as well as losses due to theft.
Despite what many small business owners want to believe, general liability offers no protection against incidents that can shut down your business. Fire, hail, windstorms or vandalism can shut down your business for days or even weeks. Business interruption coverage is part of a BOP package and reimburses you for lost revenue if your business must shut down due to a covered loss.
Personal umbrella policies are designed to cover personal, not business, liability. While coverage does extend to business equipment in certain circumstances, low coverage limits usually apply.
Personal umbrella policies cover bodily injury and property damage liability and pay legal fees for libel, slander and false arrest. Unfortunately, business coverage is extremely limited. In most cases, the maximum allowed for business equipment under a personal umbrella policy is $2,500. A personal umbrella policy is usually associated with a homeowners or personal auto policy and only extends coverage to business property if those underlying policies offer business coverage, which is rare.
Property insurance, which is part of a BOP package, offers protection from losses and damage to your physical space and equipment due to covered perils. These types of claims include theft or destruction of equipment such as computers, inventory, office furniture and supplies as well as machinery. Covered perils include fire, windstorm damage and vandalism to name just a few.
While incorporating will make your business a separate legal entity, any knowledgeable lawyer can find a way to remove that corporate protection and make you personally responsible, putting both your business and personal assets at risk. Incorporating offers zero protection against “tort” wrongs, which are judgments related to negligence, malpractice, car accidents and even slips and falls on your property. Luckily, the liability portion of a BOP protects you against these risks.
A small business, regardless of whether it is incorporated, can experience a business interruption that can cause devastating financial loss. Incorporated status doesn’t offer any protection for these types of losses.
Home-based businesses are in an even tougher position. In most cases, a homeowners policy does not cover business-related damages, especially if you are traveling for work.Home-based business owners often conduct business offsite, which can leave them unprotected.
A BOP offers full protection for home-based businesses, covering business property against damage and theft, and also provides liability protection. BOP insurance coverage can be customized to fit your business. Contact a Trusted Choice® agent to determine the best policy for your specific needs.
Even if most of your work is done at a client’s location, business owners coverage is a necessity. Caterers, contractors, electricians and personal chefs spend most of their working hours in other people’s homes. So why do they need a BOP?
Personal business equipment can be very expensive to replace if damaged, destroyed or stolen in a client’s home. You are also at risk if you make a mistake and damage a client’s property. A caterer who accidently sets fire to a client’s kitchen is ultimately responsible for the damages. Insurance companies base coverage on who was in control of the equipment at the time of loss. If you are in charge of the kitchen when a fire breaks out, the claim falls to your coverage.
Finally, the fact that most of your work is done at a client’s house doesn’t prevent you from suffering a business interruption. Destroyed or stolen equipment can result in a work interruption that can be costly.
The truth is that you should have insurance protection at all times, not just because a particular client or contract requires it. Purchasing insurance only when a client demands it and dumping it once the job is done not only leaves you exposed to a variety of risks, it dramatically raises the cost of your BOP premium.
Insurers don’t like gaps in coverage. Buying and dropping policies on a regular basis raises red flags for insurance companies, which impacts your rates and can even make it difficult to get coverage.
Strong client contracts are a great start and should always be a part of your business practices. However, even an iron-clad contract with clauses that eliminate insurance requirements does not protect you from mistakes. Lawyers can always find a way to initiate a lawsuit. If you lack the proper insurance coverage, the cost of a legal defense falls to you.
A contract does not protect your business property or tools that get damaged or lost on a job, nor does it protect you if your client shuts down suddenly, leaving you with a business interruption that could be financially damaging to your business.
Contracts are excellent business, but using them as the sole means of risk management for your business is never a good idea. Supplement your strong contracts with the insurance coverage offered by a BOP.
This myth often prevents small business owners from properly protecting their business and personal assets. According to the Insurance Information Institute, 40% of small business owners said they have no insurance because they are cash-constrained.
Buying into this myth can be a very expensive mistake. Not having insurance when there is a disaster or other major incident could end up putting you out of business. A BOP provides all the coverage you need to protect your business, bundled together into one affordable policy.
Here are some ways to lower costs for BOP insurance coverage:
It should be clear by now that BOP coverage is not really optional if you want to protect your business. Here are the basic coverages included in a typical BOP policy:
The following are usually offered on an optional basis:
A typical BOP doesn’t include the coverages below, but most can be added as an endorsement or purchased as a separate policy.
An independent agent in the Trusted Choice network can advise you on which of these additional policy types would be beneficial for your business.
Shopping for BOP insurance is easy. Contact a Trusted Choice agent, who will walk you thorough the process and make sure that you have a complete BOP insurance package that offers the best coverage for your specific needs.