Like many industries, the insurance world has its own language, with a glossary full of acronyms that routinely spill out of an agent’s mouth: GL (general liability), E&O (errors and omissions), EPL (employment practices liability), BPP (building personal property), WC (workers’ compensation) and on and on.
Insurance can be complicated, and the frequency with which acronyms are used can be overwhelming and frustrating for any business owner.
An agent should simplify all of this for you, examining every aspect of your business to identify any potential pitfalls and, thus, mitigate risk in two ways:
- First, with strategies that can help you prevent losses.
- Second (to the extent those methods are not practical or possible), with proper insurance coverage.
An insurance agent should be sensitive to your startup’s budget, and there should be an open dialogue between you and your agent regarding financial commitments.
In this article, we’re going to discuss a three-letter acronym: BOP. Everything starts with a business owner’s policy, as this is the foundation for how every insurance program begins.
For entrepreneurs and small business owners, especially, you want to open your doors to customers knowing that if disaster struck, you could rebuild, or if a customer was injured on your premises, you could pay the costs without having to shutter your business.
What does a business owner’s policy cover?
“A business owner’s policy packages many of the basic property and liability coverages businesses need when starting out,” Mike Fenstemacher, vice president of the Main Street division within Kapnick Insurance, said. “BOP insurance helps cover claims resulting from things like fire, theft or other covered disasters including bodily injury or property damage.
“BOP customization is critical to create an insurance program that meets the needs of your specific business.”
A BOP, generally, has two parts: property and liability.
The property of a business is the building in which an operation is to be conducted. This is obviously changing, in some respects, due to remote work opportunities, but many businesses still occupy a physical space somewhere. This is especially true for retail, hospitality and manufacturing.
The owner of that building is responsible for insuring its value to rebuild in case of fire, storm, explosion, vandalism, freezing pipes and a myriad of other potential causes of loss included in different types of BOP policies. A tenant of a building, leasing an office or some other space, is not often expected to insure the building itself, though some property owners will ask for some coverage in a lease agreement.
Personal property impacts both building owners and tenants. Imagine picking a building up and turning it upside down and shaking it. What falls out? Everything from desks and computers to clothing and equipment. Anything that is not permanently affixed and part of the building is personal property and should be insured in case of a loss.
Property coverage versus personal property can be thought of like this: If a fire roared through your place of business and destroyed everything, how would you rebuild? Property coverage would provide materials like lumber, brick or steel and the cost of labor while personal property allows you to re-purchase all the unique items necessary for you to reopen your business someday.
The idea behind insurance is straightforward: to restore you and your business to the place you were before something bad happened.
The second part of any BOP is general liability, or GL.
General liability protects you if a customer or client is injured while on your premises or by a product you create (this even includes food and drink). In the case of a general liability lawsuit, your insurance would pay the aggrieved party’s expenses and damages if you were found liable.
For example, think of a customer who slips on ice entering your establishment and breaks his or her ankle. If the customer sued for hospital bills and lost wages in the amount of $50,000 and won, your general liability policy would cover the payment.
Equally important, your insurer has the obligation to defend you in case you are sued, even if the claims are completely baseless.
Key takeaways on business owner’s policy insurance
In future features, I will discuss a myriad of additional insurance coverages, but if you are a small business owner or entrepreneur, the very first thing you should consider is your business owner’s policy.
Ask yourself the following:
- What will it cost to rebuild, or restock, in the case of burglary or theft?
- What exposures do we have regarding our customers?
- Could customers or clients be injured at my place of business?
- How would I pay for damages if my business or products harm a customer or client?
Often, we lament paying our insurance premiums, whether it is for our business or home and auto, believing our risks to be low and our costs to be high, but the idea that you’re contributing without any tangible return is untrue. You pay for a guarantee that in the event of a loss, your business will be made whole again.