Business insurance is there to help make sure your business, as well as your personal assets, are protected against accidents, natural disasters, or lawsuits. Small business insurance can help safeguard your livelihood, connect with business partners, land client contracts, sign commercial leases, and prove stability to consumers and shareholders. You want to be protected against unforeseen circumstances, and your clients and partners want to know that they’re safe in working with you too.
But do you have enough business insurance to ensure you’re protected for whatever comes your way?
It’s a question we get a lot, but it’s not a cut and dry answer. Just like each business deals in its own industry with its own clients and products, every company has unique insurance needs as well.
That’s why we recommend a free consultation for business owners to find out what insurance coverage your company needs. Contact us to start comparing commercial insurance quotes and find the right BOP policy for you.
In this guide, we’ll give you the basics of what you need to know about guaranteeing you have enough business insurance.
What is a BOP?
A business owner’s policy (BOP) is the standard insurance for small to medium sized business owners. It includes general liability, property damage, and business interruption (or loss of income).
It’s important to note that although a BOP covers the basics, it does not cover workers’ compensation or commercial auto, which are also critical aspects if you have employees or business vehicles, respectively. There may be other endorsements or add-ons that your individual business requires as well, which we’ll delve deeper into below.
General liability in a BOP usually includes bodily injury and property damage. Bodily injury includes cases where your business causes physical harm, injury, or illness to a person, like if a defective scooter of yours broke and caused someone to sprain their wrist. Property damage includes if your business damages someone else’s property, like if one of your delivery vans runs into a house’s mailbox.
There are usually minimum insurance limits required by state law for businesses. Certain types of businesses may also have higher liability limits, like those in the medical or construction fields. Make sure you are compliant with legal limits first and foremost.
Beyond that, how much general liability insurance your business needs is dependent upon how risky your business is. We recommend talking to your insurance agent about the business you run, so they can help you pinpoint the sorts of risks you might be facing.
You can also consider adding an umbrella insurance policy to extend your liability limits, if you need higher limits to protect your business.
Property damage insurance protects any properties your business owns. Most commercial lenders require a certain amount of property damage insurance to protect their assets (since they have a vested interest in your property). This helps cover your business-owned property due to covered perils, like fire, storms, theft, and vandalism.
You want enough property damage coverage that if you had a total loss of all your business’s structure and belongings, your insurance coverage would be enough to be able to replace and rebuild. You’ll likely need to get an insurance surveyor to properly value the property and assign a value for your insurance policy.
Property damage may or may not include disaster insurance. Ask your agent to see if floods, earthquakes, tornados, and other natural disasters are covered for your business. If not, you’ll likely want to purchase supplemental commercial flood and disaster insurance to protect your properties, belongings, and files from catastrophe.
Business interruption insurance, also called loss of income, helps keep your business afloat if you have to temporarily shut down due to a covered peril. For example, a fire destroys your storefront or a thief steals all your merchandise. (Or coronavirus hits and you’re temporarily out of commission, if your insurance covers pandemics.)
During the time to repair or replace your business operations, you’re losing potential income you could be making. For a lot of small businesses, a few months could mean going out of business. So business interruption helps compensate for some or all of the money you’d lose by not having the business open. This can help keep your business moving forward, especially during uncertain times.
Most insurance companies will base this portion of your insurance on your average monthly or quarterly income, or they’ll define a set number for loss of income when you purchase your insurance policy.
How much BOP do I need?
If you’re a low risk company, like a sole proprietor or freelancer, you probably only need a standard BOP plan. In these cases, general liability would likely be the most important aspect to protect your business against any unhappy clients suing you.
More complex businesses may require higher limits or BOP add-ons and endorsements. When you’re thinking about how much coverage you need, consider the following questions to address your risk:
- What type of business do you run? In what industry do you operate?
- Does your business require specific certifications, licenses, or insurances?
- What kind of services and products do you offer? (Are you a high risk offering, like medical supplies, or low risk like yo-yos?)
- Who are your customers? (Are they generally happy with your products, or are they a slightly riskier group who could sue you?)
- How many employees do you have?
- How experienced are your employees? (Are they prone to errors?)
- How big is your business? (The bigger the business, the greater the risk.)
- How fast are you growing? How big are you hoping to grow? (Keep in mind that the larger the business, the more risk you take on.)
- Where is your business located? (If you’re in an area with a lot of natural disasters, you’ll need to raise your property coverage limits.)
What about workers’ compensation?
Workers’ compensation is not included in a standard BOP. However, most states require businesses with any employees to have workers’ compensation and unemployment insurance. Workers’ compensation helps cover medical expenses, a portion of lost wages, rehabilitation, and death benefits if an employee is injured on the job.
Even if your one and only employee is your son, you need workers’ compensation to protect your business and workers from unexpected job hazards.
Click to get more info about workers’ compensation and BOP insurance.
Is BOP enough for my business?
For some lower-risk business, a standard BOP is enough insurance. Others may need additional endorsements for full coverage, like liquor liability for a bar or restaurant.
Some optional commercial coverage include:
Errors & omissions (E&O)
This is a professional liability insurance that helps protect your business if a client or customer files a lawsuit stating that your business caused some sort of injury based on action or negligence.
This is an important portion of insurance for service-based businesses, like medical or finance professionals, who could cause harms due to negligent actions or clerical mistakes. For example, a client may sue a financial broker if their investments tank. Or a patient might sue a doctor for neglecting to perform certain tests that could have diagnosed an illness.
E&O, like other forms of liability, can also help cover your defense costs in the case of a lawsuit. So even if you aren’t found at fault, it can step in to cover legal fees while you’re held up in court.
This coverage helps protect your business and clients in the case of a costly data breach. Cyber-criminals often target small businesses because they know security isn’t as strong as larger corporations, so cyberinsurance (and a strong IT team) is important to keep your clients’ sensitive information protected.
This helps protect you if you sell “on credit.” There’s a risk that a client won’t come through on their credit, so this insurance could help cover accounts receivable losses that save your business while you’re looking to collect on an unpaid debt.
If you have to recall a product, this portion of insurance can help cover the costs of getting the product off the shelves, advertising to rebuild public trust, and compensating customers who were injured. This is especially important as recent laws say anyone involved in the sale of a defective product that causes injury or illness is held legally and financially responsible.
Key person insurance
This is a type of life insurance on a person whose absence would mean the business would fail, at least in the short term. For example, a motivational speaker; without the talent, the events can’t go on. This offers life insurance so the company could stay afloat in the aftermath of a key individual’s death to shift gears or to cover closing costs.
Inland marine helps cover products and equipment that are being transported over land, like on a truck or train. It also covers products temporarily warehoused by a third party. So, if items are stolen from the warehouse or a truck collides and the goods are destroyed, inland marine can help pay for your product damages. For most companies, a standard BOP is enough to cover this, but inland marine helps cover high-value products moving long distances, like medical equipment, construction items, or electronics.
As you can tell, there are a lot of different types of commercial insurance. Some are wide-ranging, like general liability, while others are highly specific, like key person. That’s why it’s so important for the protection of your business to chat with a licensed insurance agent who can tell you what your risks are, what coverage you need, and how you can get full protection at a reasonable cost.
Is a home insurance rider enough?
Some homeowners insurance policies offer business coverage if you work out of your home. If you’re a small operation or a sole proprietorship, a home insurance business rider could be a low-cost solution to get the coverage you need. Similarly, if you use your car for business purposes, an auto insurance rider can help protect you while you’re using the vehicle “on the clock.”
Learn more about how to insure your business when you work from home here.
However, if you have any employees, work outside the home, have additional property, or have any increased risk, we highly recommend looking into a BOP.
Do you need more business insurance?
Every company has unique insurance needs based on industry, location, products, and other factors. Even you and your closest competitor might have entirely unique insurance plans.
Don’t risk gaps in coverage that could put your business in a financial rut. Consult with a licensed InsuraMatch advisor who understands the risks of your industry and can ensure you’re fully protected for all your business needs. We’ve got you covered.
You can also learn more about our commercial insurance services here.
Consult an insurance advisor today at (844) 819-2223 to learn how to best protect your business with commercial insurance.
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