BOP vs General Liability vs Commercial Property Requirements: A Guide for Small-Business Owners

When you're running a small business in the United States, understanding your insurance options can feel overwhelming. Three terms you'll encounter frequently are Business Owners Policy (BOP), general liability insurance, and commercial property insurance. While these coverages often overlap, each serves distinct purposes and comes with specific requirements that every business owner should understand.

What Is a Business Owners Policy (BOP)?

A Business Owners Policy (BOP) is a special type of commercial insurance designed for small and medium-sized businesses.

Think of it as a convenient package deal that bundles multiple essential coverages into one policy [1].

By bundling general liability insurance and property insurance into a single policy, BOPs typically offer a reduced premium, often making them a more cost-effective option than separately purchased policies.

A BOP is the most commonly purchased policy by small businesses and includes general liability, commercial property/business property coverage, and business interruption insurance.

BOP Eligibility Requirements [2]

Not every business qualifies for a BOP.

Companies with 100 or less employees with revenues of up to $5 million or less are eligible for these plans.

Specific coverage included in a business owner's policy varies among insurance providers, but most policies require that businesses meet eligibility criteria to qualify.

Certain high-risk businesses typically don't qualify for standard BOPs [1].

For example, a factory or a jewelry store, because of the unique risks, usually require more customized coverage than what's included in a standard BOP.

Restaurants, bars, and automotive repair shops often face similar restrictions [3].

What a BOP Covers

A typical BOP includes three main components:

Property Coverage:

The property insurance portion of a BOP is available most often as named-peril coverage, which provides compensation only for damage caused by events specifically listed in

the policy [1].

Some BOPs offer open-peril or "all-risk" coverage; this option is available from the "special" BOP form rather than the "standard."

Liability Coverage: [1]

The liability portion of a business owner's policy offers coverage for third parties who suffer property damage, advertising injury or personal injury on a covered business's premises or caused by the business's owner or employees.

Business Interruption Insurance: [1]

Business interruption insurance provides up to 12 months' income for covered businesses when they are forced to shut down operations because of a covered property event.

This is particularly valuable given that [1]

according to the Federal Emergency Management Agency (FEMA), about 25 percent of businesses fail to reopen after a disaster strikes.

Understanding what does business insurance cover can help you determine whether a BOP meets your needs or if you require additional specialized coverage [2].

What a BOP Doesn't Cover

A BOP typically does not include commercial auto insurance, workers' compensation, health or disability insurance or liability insurance for claims of wrongful professional practices.

Business owner's policies do not include liquor liability insurance for businesses that sell or manufacture alcohol.

If your business needs these additional protections, you'll need to purchase separate policies. For instance, if you're wondering about what is workers comp insurance for small business, that's a standalone requirement in most states [1].

Understanding General Liability Insurance

Commercial general liability insurance is a broad type of insurance policy which provides liability insurance for general business risks, and covers many of the common risks that can happen to any type of business, such as bodily injury or property damage on the business premises or due to the business operations, personal and advertising injury, and medical payments.

General Liability Requirements and Coverage [4]

General liability protects the business from liability claims alleging bodily injury, property damage, libel, and slander.

If someone gets hurts on the business property, general liability helps pay for medical expenses. It also pays legal fees if someone files a lawsuit against the business.

CGL insurance is generally categorized as an "all-risks" type of insurance, under which it provides coverage for risks unless specifically excluded.

However, [4]

specific risks that are normally excluded from CGL coverage include professional services, pollution, liquor, automobile liability, and direct

employee injuries [4].

Standalone vs. Bundled General Liability

You can purchase general liability insurance as a standalone policy or as part of a BOP.

In a survey by the National Federation of Independent Business (NFIB), 30 percent of small business owners ranked the cost and availability of liability insurance as their second most important insurance concern.

Liability insurance premiums are typically linked to a business' sales and payroll estimates provided prior to policy inception.

The type of business greatly influences liability premiums. For example, a toy manufacturer might be assessed premiums of as much as $3 per $1,000 in sales, or $30,000 on $10 million in annual revenue.

For businesses operating from home, it's crucial to know that does homeowners insurance cover business liability is typically limited [3].

Most individual policies limit coverage for business property losses or damages to $2,500 in the home and $250 away from home.

Commercial Property Insurance Explained [3]

Commercial property insurance protects the business's location and physical property, such as equipment, inventory, and furniture.

This coverage can be purchased separately or as part of a BOP [2].

Commercial Property Coverage Details

Commercial property insurance can help with repair or replacement costs if a covered peril such as fire or lightening results in physical structural damages to a building or items inside the building, such as office equipment.

Property that has been damaged due to riots, civil commotion, and vandalism is also usually included.

Property is insured in two main ways—open perils and named perils. Open perils cover all the causes of loss not specifically excluded in the policy.

Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism, and war.

Property Insurance for Tenants vs. Owners [5]

If you lease your building or office, do not rely on your landlord to provide coverage for your business property. The building typically is insured only for the basic structure and common areas.

A business property insurance policy generally includes a statement specifying the limit of liability. The limit of liability is defined as the maximum amount an insurer will pay for a covered loss.

Proximity Requirements [3]

To be covered by a BOP, business property must be stored or kept in specified proximity of business premises (e.g., within 100 feet of the premises).

This is an important consideration if you store inventory or equipment off-site [1].