What’s the difference between a BOP policy and General Liability Insurance?
Whether you are a new contractor or have been at it for a while, you’re likely dealing with how to protect your business from everyday risks.
Certainly, theirs is a whirlwind of insurance types that are thrown at you by agents looking for instant commissions, and if you search the internet for “contractors’ insurance’” the confusion can be overwhelming.
Easy Article Navigation
- What is a BOP Insurance Policy?
- What Does a BOP Not Cover?
- Business Owner’s Policy vs. General Liability
- How Much Does a BOP Cost?
- Frequently Asked Questions
- How to Purchase an Affordable BOP Policy
Here we’ll drill down into the BOP policy and General Liability Policy and discuss which is right for your business and why.
We’ll pay special attention to the BOP because it’s less familiar to contractors.
What is a BOP Insurance Policy?
A BOP (Business Owners’ Policy) is a “package” policy that is generally purchased by small and mid-sized businesses that need general liability coverage and property coverage for their office and/or workshop.
Typically, a business can save premium dollars when they buy a package policy and are able to insure against risks that a general liability policy will not cover.
A BOP will include three primary coverages:
- Coverage for a business’s property like buildings and contents that are owned by the company.
- Liability coverage protects the business from the legal responsibility for any financial harm it may cause to a third party. Generally, this harm results from certain things that you and your employees do or don’t do that results in bodily injury or property damage because of faulty workmanship, defective products you might use, or faulty installations of products provided to your customer.
- Coverage for business interruption that typically results in lost income that can result from a fire or natural disaster which to disruption of your operation. Also included in this coverage is reimbursement of extra expenses when your business must temporarily relocate while your business property is under repair or being rebuilt.
Commercial insurers will also allow a business to add optional coverages to a BOP that can provide additional coverage for other risks:
- Data Breach – Any business that handles or stores private information, like your customer data or employee records, is vulnerable to a data breach. It’s important to act quickly to restore customer confidence in your business. If a breach happens, your BOP will cover your costs of notification requirements, monitoring services, and public relations costs to restore your reputation.
- Errors and Omissions (Professional Liability) Coverage – Many contractors put their expertise and professional judgment on the line with many customers. Doing so can expose your business to lawsuits claiming professional errors in judgment or negligent acts. The E&O coverage added to your BOP will cover defense costs and financial damages awarded by the court up to the limits in your policy.
What does a BOP Not Cover?
Although a business owner’s policy is fairly comprehensive, the policy is not designed to provide coverage that is found in stand-alone policies such as:
- Workers’ Compensation Insurance
- Commercial Auto Insurance
- Pollution Coverage
- EPLI (Employment Practices Liability Insurance)
- Flood Insurance
- Inland Marine (can be added by endorsement but with lower limits)
Business Owners Policy vs. General Liability Insurance
The primary difference between a BOP and General Liability insurance is the coverage for commercial property and business personal property.
Whereas the general liability policy focuses on a contractor’s liability for bodily injury and property damage, the BOP combines that coverage with commercial property coverage resulting in a package of coverages that are generally less expensive than purchasing two stand-alone policies.
However, there are eligibility requirements for purchasing a BOP that are not found in most general liability policies:
- Cannot have more than 100 employees
- Less than $1 million in revenue
- Must rent, lease, or own an office, workplace, or other business structure
- Must operate in a low-risk industry
A good rule-of-thumb to follow is if you need commercial property coverage and general liability and not operating in a high-risk industry, your business will likely qualify for a BOP.
How Much Does a BOP Cost?
The premium for a Business Owner’s Policy is calculated by determining the risk each applicant presents to the insurance company. The risks involved would generally be the same if the applicant was applying for separate general liability coverage and commercial property coverage.
Typically, the industry you operate in will have the greatest impact on your annual premium. For example, a “mom and pop” locksmith business will pay substantially less than a concrete contractor because the locksmith contractor presents a lower risk.
The primary underwriting factors that are considered in a business owner’s policy are:
- The industry your business works in
- Number of employees (excluding insured sub-contractors)
- Years in business
- Loss history (claims paid)
- Replacement value of commercial property
- Replacement value of business personal property
- The geographic location of your business
- Annual revenue
- Number and type of endorsements required
- Lapse in coverage
- Number of customers serviced annually
- Limits required
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Frequently asked Questions
How much BOP coverage do I need?
The amount of coverage you’ll need in your BOP will depend on the replacement cost of your commercial property and your business property and the limits of liability coverage your business should have.
What’s not covered under a Business Owner’s Policy?
Typically, any coverage you can purchase in a stand-alone policy is not covered under a BOP unless it can be added via endorsement. Although coverage found in some stand-alone policies may be added via an endorsement, the policy will generally have a lower cap on the limits provided.
Will a BOP satisfy my GL requirement to get licensed by my state?
States that require general liability coverage in order to be licensed will typically accept a BOP policy as long as the liability limit in the BOP meets the minimum GL limit required by the state licensing board.
How will I know if my contracting business qualifies for a BOP?
When you discuss your business with an experienced insurance professional, he or she will recommend the best package of coverages for your business. In most cases, as long as you lease or rent a commercial building that your business works from and you operate in an acceptable industry, you’ll likely qualify for a BOP.
How to purchase an affordable Business Owner’s Policy
Most commercial insurance brokers offer every type of coverage a contractor needs to transfer its everyday risks to an insurance company. However, like with any independent insurance broker, some are just better than others because their insurance professionals specialize in contractors’ insurance.
Fairbanks Insurance Brokers are a one-stop resource for contractors who need insurance to mitigate the risks they face every day and they will always look for the best solution at the most affordable price.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
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