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Updated: Dec 11, 2019
One of the least exciting parts of setting up your small business venture is getting insured—but it’s also likely one of the most important things you’ll do.
In today’s litigious society, businesses of all sizes—even home-based businesses—should have the proper insurance coverage. If you interact with customers, vendors, or suppliers—or if your business owns valuable physical assets—you are at risk for losing everything when the unexpected occurs, whether it’s a weather disaster, theft, or a lawsuit.
Navigating which policies you need can be tricky, especially for a new business owner. But luckily, most small businesses are eligible to simplify their coverage with a BOP, or Business Owner’s Policy.
A BOP combines three key policies—general liability, commercial property, and business interruption—into one affordable, convenient package. It can also be customized to fit a variety of industries and specific business-types.
Here’s a breakdown of the three types of claims a BOP provides protection for:
A third party is generally anyone that is not employed by the business—meaning customers, vendors, suppliers, and partners could all fall under this umbrella. With general liability coverage under a BOP, you’re covered for many third-party injury claims including common slip and falls, property damage, and reputational injury.
For example, if an employee accidentally damages a client’s property, a Business Owner’s Policy would cover repairing or replacing said property in addition to the cost of any resulting legal action.
What’s important to note is that no matter how careful you are interacting with clients, you probably will still need general liability coverage, through an individual policy or BOP. That’s because sometimes, even if you’re not found at fault, the cost of a lawsuit alone could bankrupt a small business.
If you own or rent any physical assets (like equipment or furniture) or property (like a building, or your house if you’re business is home-based), you likely need commercial property insurance.
While some small business owners don’t think it’s necessary, it’s important to consider that the cost of replacing property can add up quickly. Even if you work from home, just imagine the cost of having to suddenly replace a computer, all of its connected equipment, and your workspace. It could get pretty pricey!
And if you do own a storefront or office, the risk is magnified further. A weather event could severely damage your property, or it could be vandalized or destroyed in a fire. With commercial property insurance through a BOP, you can rest easy knowing you will be able to replace and repair damaged or stolen items.
In some cases of property damage, the premises where you conduct business may be left temporarily inoperable. That means if your business requires a physical workspace, you need to meet with clients, or you own a physical store where customers come to shop—business could be interrupted. With business interruption insurance through a BOP, you could replace lost income and continue to pay your bills while your business is closed. Or, insurance may pay for you to temporarily relocate. For a small business, this type of policy can be a lifesaver.
If your business operates out of one location that contains valuable equipment and/or frequently deals with customers onsite, the answer is probably yes.
However, a BOP isn’t for everyone. In fact, there are a number of requirements to qualify for a BOP. If your business has more than 100 employees or earns more than $1 million in revenue, you likely won’t qualify. You also may be ineligible if you operate in certain high-risk industries.
Even if you qualify, a BOP may not be the best choice for you. For example, if you provide professional services—maybe you’re a lawyer—but you don’t have any employees or office space, you may be better set up with a combination of general liability and professional liability insurance. Or, if you conduct work on a client’s site—like a building contractor—you may need to purchase liability insurance with higher limits to satisfy your client’s requirements.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.