The business owners policy

What is in the package

The two named covers are property and general liability, and most packages include business interruption alongside them rather than as an extra.

• Commercial property — your building where you own it, and contents, stock and equipment either way
• General liability — third-party bodily injury and property damage arising from your operations, with defence costs
• Business interruption — lost income and continuing expenses while you cannot trade after a covered loss
• Often some limited extras, which vary and are worth reading rather than assuming

Business interruption is the reason to read the policy

It is the cover that decides whether a business survives a serious loss, and it is the one owners understand least well.

Two settings do most of the work. The period of restoration limits how long the cover runs, and it is measured by how long repairs should reasonably take rather than how long your customers actually take to come back. And most policies apply a waiting period before it begins at all.

It also generally requires direct physical damage from a covered peril. A loss of trade with no physical damage behind it is usually outside it, which is the single most misunderstood point in the whole package.

Who qualifies

A BOP is aimed at smaller businesses in lower-hazard classes, and eligibility is generally judged on the size of the premises, the level of revenue and what the business actually does.

The class of business matters more than the size. Manufacturing, contracting with significant off-site work, anything involving substantial vehicle use, and businesses whose main product is professional advice are commonly written outside a package, either because they need broader cover or because the hazard does not fit the form.

Growing out of eligibility is normal and is not a problem in itself. It is a problem when nobody notices, and the business renews a form that no longer matches what it does.

What a BOP does not include

This is the practical half of the page. A package is a package of two things, and the covers below are generally not among them.

• Professional liability — errors, omissions and bad advice, which is the largest gap for any advice-based business
• Workers' compensation — always separate, and generally required by the state once you have employees
• Commercial auto — vehicles are their own policy, and hired and non-owned cover is separate again
• Cyber — usually excluded or capped far below what an incident costs
• Employment practices liability — discrimination, harassment and wrongful dismissal claims
• Flood, and often other specific perils depending on the location

Package or separate policies

For a business that fits the eligibility class cleanly, a package is normally both cheaper and simpler, and having one renewal date and one insurer for the core covers has real administrative value.

Separate policies start to make sense when one exposure is unusual — a high-value stock holding, an unusual occupancy, or a liability profile the package rates poorly. A package prices on the class; individual policies can be built around the business.

The wrong reason to choose a package is that it is the shortest conversation. It covers two things, and knowing which of the others you still need is the entire exercise.

Replacement cost, actual cash value and coinsurance

How the property section is valued matters more than the headline limit. Replacement cost pays what it costs to replace the item today; actual cash value pays that less depreciation, and on ageing equipment the difference is substantial.

Commercial property also commonly carries a coinsurance condition, which has no residential equivalent and surprises people. In outline: if the limit is set below a stated proportion of the property's value, a claim can be reduced proportionally — including a partial claim well within the limit.

The practical consequence is that under-insuring to save premium can reduce what you recover on a small claim, not only on a total loss. It is worth confirming how your limit was set rather than accepting a figure carried forward from an earlier renewal.

At renewal

A package renews on the description of the business it was written for, and small businesses change faster than their policies do.

The things worth re-checking are the ones that quietly drift: what the business now does, revenue, whether anyone has been hired, whether anyone drives for work, what the equipment and stock would now cost to replace, and whether the premises or occupancy have changed.

Tell your insurer about changes when they happen rather than at renewal. Cover generally follows what the policy was told, and a claim arising from an activity the insurer was never told about is the hardest kind to argue.