A business owner's policy is a low-cost form of insurance aimed at small businesses that combines two forms of insurance: general liability and property. General liability insurance covers a business's costs should it be involved in a lawsuit, such as legal fees, settlements and damages. Property insurance covers damages to commercial property owned by the business should it be destroyed or damaged, such as by fire, theft or extreme weather.
Some business owners' policies also provide business interruption insurance to cover lost income resulting from a catastrophe that disrupts its operations. This may also cover extra expenses incurred by operating out of a temporary location. Each of these elements can be purchased separately, but bundling them together may provide cost advantages.
In order to qualify for business owner's insurance, the company typically must have fewer than 100 employees and earn less than $5 million per year in revenue, the Insurance Information Institute notes. High-risk businesses, such as construction and manufacturing, require more robust insurance policies. Business owners' policies are geared toward small retail stores, distributors and contractors, for example. Some insurers will allow additional risks specific to the sort of business the firm is engaged in to be added to the package.
When determining insurance costs, Inc. states that business owners should consider between 20–30 percent of predicted gross sales as the baseline budget for all insurance coverage, including health and life insurance.
Companies that have previously filed property or general liability claims, that require employees to travel frequently as part of their work, and those that have a significant amount of property to insure may incur greater insurance costs. The more risk a business faces, the higher the cost will be.
Advantages and Disadvantages
One of the main benefits of taking out a business owner's policy is a lower cost. This comes from purchasing one package and having only one monthly premium to pay. Because such policies are generally prepackaged, the coverage is also generally easy to understand.
While it's possible to add extra coverage to the policy, insurance advisers note there can be drawbacks to this type of insurance coverage. These include a lack of flexibility in coverage limits; some business owners may find the maximum coverage limits are not suitable for them. Further, not all types of risk are covered. For example, vehicle insurance must be purchased separately.
Not all companies require a business owner's policy, but for many small and midsized businesses, the coverage provided should be sufficient to give them peace of mind. If you have questions about business owner's policies, an insurance professional can help you understand your options.
To learn more about business owner's insurance options, check out the Property & Casualty Coverage 101 Small Business Guidebook.
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