How do I decide what to include in a custom Business Owner's Policy (BOP)?
Here is how to approach customizing a Business Owner's Policy (BOP)—from establishing the core package to selecting the right endorsements and setting proper policy limits.
Step 1: Start with the Core Triad
Every standard BOP combines three fundamental coverages into a single baseline package:
Commercial General Liability (CGL): Covers bodily injury, third-party property damage, and advertising injury occurring on your premises or during operations.
Commercial Property Insurance: Protects owned or rented real estate, leasehold improvements, physical inventory, furniture, and essential equipment.
Business Interruption (Business Income): Replaces lost net income and pays ongoing operational overhead (like rent and payroll) if a covered property loss forces a temporary shutdown.
Step 2: Evaluate Key Industry Exposure Endorsements
A standard BOP leaves major gaps for specific business models. Add riders (endorsements) based on how you operate:
If you handle sensitive client data or digital payments:
Add: Cyber Liability / Data Breach Rider. Covers notification costs, forensic investigations, and regulatory fines if customer records are compromised.
If employees drive personal cars or rented vehicles for work:
Add: Hired & Non-Owned Auto (HNOA). Protects the company against third-party liability if an employee causes an accident while running business errands, picking up supplies, or visiting clients.
If you rely heavily on specialized machinery, HVAC, or refrigeration:
Add: Equipment Breakdown Coverage: Pays for sudden mechanical or electrical failures not covered by standard fire/theft property insurance.
Add: Utility Services / Off-Premises Power Failure: Covers business income loss if a utility failure (power, water) outside your building shuts down operations.
If you handle physical inventory or client money/goods:
Add: Spoilage Rider: Crucial for restaurants or perishable goods if power goes out.
Add: Employee Dishonesty / Commercial Crime: Protects against internal theft of money, securities, or inventory by staff.
Add: Inland Marine / Equipment Floater: Protects tools, laptops, or gear that frequently leave the primary location.
Step 3: Determine Replacement Valuation & Policy Limits
When configuring property and liability parameters, pay close attention to valuation methods:
Actual Cash Value (ACV) vs. Replacement Cost Value (RCV):
Always aim for Replacement Cost Value on property and equipment. ACV deducts depreciation, meaning an old computer or machine will pay out pennies on the dollar, while RCV pays to replace it with new equipment of like kind and quality.
Business Interruption Limits:
Most BOPs cover actual loss sustained up to 12 months, but check whether your policy requires a specific dollar cap or waiting period (e.g., 24–72 hours before benefits trigger).
General Liability Aggregates:
Standard BOP limits often default to $1,000,000 per occurrence / $2,000,000 aggregate. Increase these limits if you operate in high-foot-traffic areas or face higher contractual liability requirements from commercial landlords.
Step 4: Identify What Must Be Purchased Outside the BOP
A custom BOP cannot cover every operational risk. Ensure you do not leave these major exposures uncovered:
Workers' Compensation: Almost universally required by state law as soon as you hire employees; always written as a standalone policy.
Professional Liability (E&O): If you give advice, design, or provide licensed professional services, GL will not cover claims of bad advice or financial loss. (Some carriers allow a small E&O rider, but most require a separate policy).
Commercial Auto: Required if the business owns or leases vehicles titled in the company name.
Commercial Umbrella: If client contracts or exposure require liability limits above $2M–$5M, an umbrella policy sits on top of your BOP's general liability.
Please contact me for more information.
(626) 702-1399
CA Insurance License #4505589
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