If your small business were to be hit by a fire, burglary or lawsuit, could you write a check to cover the losses?
For most, the answer is no. That’s why a business owners policy, or BOP, is crucial if you hope to bounce back from such a disruption to your operations.
What does a BOP cover?
Unpredictable events can derail your business plans. Consider these scenarios:
- A pipe bursts and destroys your storage room and important files
- A thunderstorm damages your building and forces you to close for a few months
- A customer trips and falls in your space, then sues
How does a BOP cover against these risks?
BOPs combine comprehensive property and liability coverages into one easy package specifically designed for your small business. BOPs include insurance for your owned building and your business personal property (your equipment and furniture). The general liability portion of your BOP offers coverage in many situations when a customer or third party is injured or suffers property damage as a result of your daily business operations. BOPs also can include business income coverage that will help bridge the income gap from a necessary business shutdown after a disaster.
Why do I need a BOP?
As a small business owner, you need a BOP to protect your interests and assets from catastrophe. You also want to protect yourself from general liability issues, should a customer sue you. Without this coverage, the costs of a water damage event, a fire, a lawsuit or any other calamity would have to be paid out of your pocket. For some perspective, the average loss for a CNA business personal property claim during the period from 2012 to 2016 was $15,476. For the same period, a water damage event, on average, caused $19,348 in losses to claimants’ buildings and $18,464 to the building contents, according to CNA data.
Keep in mind that for every dollar you lose in damaged property, there are also intangible costs to consider, such as the impact to customer relationships while your doors are shuttered.
It may seem obvious that you need insurance for your building in case of fire, but how about insurance to cover your income loss while you’re working to get your business back up and running, as quickly as possible? How long could you go with your business closed and still pay your bills or retain key employees? Business income insurance will help you survive such a setback, covering your net income and operating expenses following the loss, while you may be unable to serve your customers. When your business is closed, some expenses may go away, but others remain. Think of the income you would need to cover all of your expenses and overhead while you are shut down.
BOPs simplify the insurance process for small business owners and, while the policies cover many situations you may encounter, it’s important to note that a BOP does not cover workplace injuries suffered by your employees. You will need a separate workers’ compensation policy to cover employee injuries.
When purchasing coverage, work with a reputable and experienced insurance company that will tailor a BOP to the needs of your unique small business. Consider whether the insurance company has truly thought through the challenges and situations your business faces and can build a relevant BOP that provides the right coverage. Your BOP should reflect your risk realities, and allow you to sleep better at night, knowing one unpredictable event does not have to mean the end of the small business you’ve worked so hard to build.
The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the date of the article. Accordingly, this article should not be viewed as a substitute for the guidance and recommendations of a retained professional. Any references to non-CNA websites are provided solely for convenience, and CNA disclaims any responsibility with respect to such websites.
To the extent this article contains any examples, please note that they are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. In addition, any examples are not intended to establish any standards of care, to serve as legal advice appropriate for any particular factual situations, or to provide an acknowledgement that any given factual situation is covered under any CNA insurance policy. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All CNA products and services may not be available in all states and may be subject to change without notice
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