What Is a BOP? The Business Owners Policy Explained

A Business Owners Policy (BOP), is a "package" policy which contains all three of the major coverages small to mid-sized businesses typically buy: Commercial Property Insurance, General Liability Insurance and Business Income Coverage. It is generally cheaper than purchasing each of these coverages individually. In addition, it has many additional common coverages included as part of the standard BOP. However, only lower risk businesses with specific size limits are eligible to purchase a BOP.

If you run a shop, office, restaurant, or small contracting operation, a BOP is usually the first policy a broker quotes you. Many of these owners believe that they have received full coverage for their entire business from the BOP. However, it never does. Here is what sits inside the package, who insurers will accept, and where the BOP falls short in its protection.

What does a BOP cover?

A BOP essentially includes three forms of coverage that are needed by nearly all small businesses, all on one form (ISO’s Businessowners Coverage Form BP 00 03). The Property Section covers your building, if owned, as well as your business personal property which would include but not limited to: furniture, equipment, inventory and improvements made to leased premises.

The Liability Section will work similarly to a General Liability Policy on its own. The liability section will pay out for injuries to customers who have been injured while on the premises of the insured business or from damages caused by an operation or product of the insured business to another party's property. For more information about this portion of the BOP see our detailed guide to what general liability insurance covers.

The Third Coverage: business income (Lost Profits and Continuing Expenses): This will provide lost income and pay ongoing bills such as rent and salary to help you recover from a property loss insured under this policy. Time Element coverage is usually included on many Business Owners Policies (BOP) without a separate limit. A definite advantage of a BOP versus traditional commercial property policies.

Who qualifies for a BOP?

Under ISO’s filed eligibility rules, a business is eligible to be written on a BOP if no one location has more than 35,000 total square feet of floor space or $6 million dollars in annual gross sales. These are the same baseline amounts that IRMI uses in their Businessowners Policy Basics.^[1]

Class as well as size matter. The typical programs are office, retail store, restaurant, small wholesale, apartment building, and artisan contractor classes. Other types of businesses are excluded because they have higher hazards such as manufacturers, bars, auto dealers and large contractor classes.

Those amounts are the minimum or "floor," and not a hard ceiling. Each of the carriers will file their own programs and some will go beyond those limits to attract a good account. A business that grows out of being eligible for a BOP will be able to purchase a Commercial Package Policy (CPP) that can include a commercial property insurance form (like the CP 00 10) as well as a CGL policy and any other coverage needed by the customer. A CPP is more difficult to put together than a BOP, however, it has no eligibility ceiling.

What does a BOP not cover?

A BOP is a policy for coverage of a package, NOT a force field. A retailer that believes the BOP will cover his injured warehouse employee AND the damaged delivery vehicle AND the poor advice given to the customer was wrong about each one. The BOP explained by the Insurance Information Institute caps off its list of things that are “NOT” covered with the word "NOT".^[2] Professional liability, workers compensation, and auto are examples of those types of exposures that ALWAYS remain outside of the BOP:

• Commercial auto: Commercial Auto Insurance Policy Required for All Vehicles Owned by Your Business. Some BOP's can be endorsed to include Hired and Non-Owned Automobile Liability, however these endorsements only apply to automobiles borrowed or owned by employees, they never provide insurance coverage for vehicles titled to your business.
• Workers compensation: Workers Compensation Insurance is responsible for all work related injuries to employees. In nearly every state, state law requires workers comp once you hire an employee.
• Professional liability: The BOP will cover physical injury or damage to property, not the financial harm of bad professional advice. However, our Guide to professional liability insurance shows you how to buy a policy to protect your business against the loss of money due to poor professional advice.
• Cyber: While BOP's may be endorsed for very basic Cyber coverage, the limits are minimal as are the types of perils covered. If a business holds its customers' information they should price a standalone cyber policy.

BOP vs buying separate policies: which is better?

Here is how we compare the options for a Business that qualifies for a BOP:

Honest verdict: buy the BOP if you qualify for it & your exposures are ordinary. Switch to a package policy when you need higher property limits, unusual coverage forms, or your operations no longer fit inside of the eligibility box.

How much does BOP insurance cost?

Underwriters also use the same factors to determine the cost of a Business Owners Policy (BOP) as are used for each individual coverage within that BOP and roll them all into one premium. Factors on the Property Side of the policy include Building and Personal Property Limits, Construction Type, Location, Fire Protection Class and Roof Age. Factors on the Liability Side of the policy include Class Code and Rating Basis such as Gross Sales or Square Footage. Thus, an Office Building is considered a "Low Hazard" by underwriting standards and would be significantly lower in premiums compared to a Restaurant which has similar revenue but much greater fire hazard and liability potential.

For an anchor, small business buyers using Insureon to buy a BOP (Business Owners Policy) are paying an average monthly cost of around $83 for the BOP. About a quarter of their customer base pays under $50.^[3] The BP 00 03 has a $500 base property deductible. Raising this toward the higher ISO deductibles will be the fastest way to affect your premium on the property side.

Get quotes from at least two to three carriers that have an appetite for your class. Due to the fact that the Liability Side of the BOP is rated off Gross Sales, many BOP's will have a Year End Premium Audit. This means if you have a great sales year you may receive an additional premium invoice after the policy has expired. Sometimes the lowest price quote is due to a thinner filed form (less coverage) than sharp pricing. Read the actual form prior to taking it.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

The Bottom Line

A businessowners policy bundles all three of these policies (commercial property, liability, & business income) together as part of an insurance package that can be less expensive than purchasing each policy separately if your business is classified to qualify. The BOP will almost always win in terms of cost compared to purchasing individual policies for many classes and sizes of businesses. However, the BOP never covers commercial auto, workers compensation, or professional liability. Be sure to ask your agent/broker about what endorsements are available to fill in the gaps in your operations before signing.