NFIB

General Insurance Knowledge: Understanding Business Owner's Policies
05/ 12/ 2003

by Jeffrey Moses

When purchasing insurance -- or when re-examining existing policies to make sure coverage is adequate -- it's important that a small company avoid having too much coverage or too little coverage. The first wastes money; the second provides inadequate protection in case of loss. With the wide array of coverage required today, the best way to keep coverage at proper levels is to thoroughly understand what is and is not covered by particular policies.

Most small businesses are covered by what is termed "Business Owner's Policies," or BOPS as they are generally known. The type of coverage protects against a wide variety of potential losses, including property, liability, and costs of litigation. Risks that are covered as standard under most BOPS include:

1. Owned buildings and office structures
2. Business equipment (with additional coverage optional when a large amount of coverage is required)
3. General office contents, including decorations and fine art
4. Fire and theft losses (certain exclusions may apply -- normally flood and earthquake insurance need to be purchased separately)
5. Personal and business property brought onto the premises by non-employees
6. Liability costs (medical expenses of non-employees injured from business operations, lawsuits for injury or property damage, etc.)
7. Business interruption, lost income (including salaries and other operating costs) for up to one year.

Certain potential losses are not covered by BOPS -- or potentially are not covered to necessary limits. Businesses that have exceptionally expensive equipment, for instance, may need to purchase add-on coverage. Other risks not normally covered by BOPS include: financial loss caused by employee fraud or embezzlement; professional liability insurance (which covers losses resulting from errors, omissions or negligence); vehicles (normally covered by fleet insurance); workers' compensation; and others.

Most small businesses can qualify for BOPS. Generally, companies should have 100 or fewer employees and gross revenues less than $1 million. When these limits are exceeded, it's probably best to consult with insurance professionals to purchase specific types of policies as required -- at limits based on the particular needs of the business. Also, certain types of companies with high risks or high potential losses may find it difficult to purchase BOPS.

Some small companies will find that BOPS do not offer the limits of coverage required for certain risks -- and because BOPS cover a wide range of risks, they do not offer great flexibility. However, they are normally far less expensive than purchasing coverage piecemeal.

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