How to Determine Eligibility for a Business Owner's Policy?

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Is Your Company Eligible for a Business Owner's Policy?

Business insurance is relevant to many companies not identifying as large corporations. If you own a small firm, then it is vital to consider a business owner's policy. This customizable policy helps protect your company during insured events that take a financial toll.

For instance, your client may get injured during a visit to your office and seek damages. A windstorm could hit your office and destroy the building and its contents, resulting in costly replacement of the damaged property. The resulting loss of income from the business’ closure could be devastating.

A business owner's policy can help safeguard your firm from financial losses in these situations. This article explains what this insurance covers and how to determine if your company should be eligible for a business owner's policy.

Business Owner's Policy in a Nutshell

A business owner's policy (BOP) is a type of insurance that combines several types of coverage into a single package. Typically, BOPs can protect against losses due to third-party bodily injuries and property damage, owned property, and business interruption losses.

A business owner's policy includes the following:

Property insurance: This can cover physical assets such as buildings, furniture, equipment, and inventory.

Liability insurance: This could protect your firm from lawsuits and legal proceedings related to accidents, injuries, or damages caused by your business.

Business interruption insurance: Part of the property coverage, this can replace your revenue stream to keep your company operational in the event of a covered claim

Eligibility Criteria for a Business Owner's Policy

Here are some basic guidelines that insurance companies typically use to determine if your company is eligible for this policy:

  • Eligibility criteria will vary by insurance company
  • Location must be within insurance company’s acceptable territory
  • Business operations must be low risk-must be in an acceptable industry
  • Limitation on employee count
  • Revenue limitation
  • Insured property value limitation

Most insurance companies do not make any exceptions on the eligibility for a Business Owners’ Policy. The premiums for a BOP are very low due to the criteria that must be met to be eligible and making exceptions would upset the balance of actuarily sound rates

Business Owner's Policy Coverages

Owners of small companies should be aware of what is covered in a business owner's policy. This insurance essentially covers three main components:

 1. General Liability Insurance

This component helps cover costs related to third-party lawsuits. It can cover third-party claims related to third-party bodily injuries and property damage at your business premises or a job site. Personal and advertising injury for claims of false arrest, wrongful eviction, invasion of privacy, libel, and slander are also included. General liability insurance helps you by providing your company with legal defense and payment of court fees, and settlements for covered claims.

2. Commercial Property Insurance 

This is the second component of a business owner's policy, which covers property damaged or destroyed due to specific events. Property covered can include digital equipment such as computers, furniture, inventory, machinery, and the very structure of your company building. The causes of destruction and damage covered by a standard commercial property insurance policy include theft, vandalism, fires, and wind storms.

Thus, being eligible for a business owner's policy can help you pay for the repair and replacement of damaged property. However, it does not cover property damage due to natural disasters such as earthquakes and floods. These perils are typically covered with separate policies.

3. Business Interruption Insurance

This type of property insurance assists firms in replacing lost income to pay for ongoing expenses if they cannot operate due to a covered event such as a tornado, hurricane, fire, or insured peril.

Business interruption insurance ensures your company receives income during a covered shutdown so key employees can be paid and retained. For instance, if your restaurant is damaged due to a fire, this insurance can cover the loss of income incurred when the restaurant cannot operate.

Similarly, if an office is forced to shut down due to a government order or a disease outbreak, business interruption insurance will not cover the lost income and additional costs incurred. For business income coverage to apply, the business's closure must result from damage to the structure from a covered peril.

How much coverage does your firm need?

Once you fulfill the eligibility requirements for a business owner's policy, the next step is understanding how much coverage you need. Keep these factors in mind:

Commercial property value: For instance, if you have expensive inventory and equipment or need to insure an entire building, the premium will be higher.

Nature of business operations: If your firm generally performs many tasks on client properties, there’s a higher potential for third-party claims and lawsuits to be filed. This affects the cost of general liability insurance coverage.

The takeaway

When purchasing commercial insurance for your firm, it helps to understand whether your company is eligible for a business owner's policy. Next, you should evaluate what optional coverage your business may need.

The best approach is to partner with an experienced insurance advisor who can help you evaluate the requirements of your business. Purchasing adequate coverage can help you build a thriving, sustainable company.

If you want to buy business insurance, contact Insurance Advisor today and get a quote for your specific business needs. Our friendly agents can help you understand how to protect your firm. Get a quote or compare pricing on your next renewal policy!