A business owner's policy worth checking out

By David Trahair

For many small-business owners, a business owner's policy insuring buildings, equipment and legal liability may be most or all of the insurance they need.

This type of policy (called a "BOP" by insurers and others) insures the physical items used in a business and protects against claims for damage to property or personal injury.

Even if your business requires other types of coverage, you should consider this option. Let's look at both components.

Property coverage

Just as you'd protect your home and its contents, you also should cover your business assets against a loss. But make certain the coverage is adequate — look at the property's replacement value, actual value (replacement costs less any depreciation) or some other amount you deem adequate.

The most common method is to insure for replacement value. That way, if you do suffer a loss, you won't be out of pocket to get back to business as soon as possible. You will have to adjust your coverage periodically as you acquire or dispose of property — you also should be careful to update the replacement values as time goes by. For example, a computer that cost $3,000 a year ago may be replaced at a much lower cost today. The lower the insured amount, the lower the premiums.

Insurance companies evaluate potential customers by looking at the risks inherent in their businesses. If the business appears to have a higher degree of risk, that business will pay more for premiums or may have difficulty getting coverage at all. The key is to reduce the risk that a loss will occur.

Fire risk is one of the main factors in determining the cost of property insurance. Building or leasing a fire-resistant building should reduce premiums significantly. You also should make it a point to keep your premises neat and tidy. A location with piles of boxes and debris, for example, is a much higher fire risk.

Here are other ways to reduce risk:

Check smoke detectors on a semiannual basis and maintain written records.
Maintain all fire safety equipment.
Maintain emergency lighting and illuminated exit signs in proper working order.
Develop a daily inspection routine of the premises, taking immediate steps to correct any hazards.
Avoid overloading electrical outlets.
If you live in a flood-prone area, determine whether your property is above or below the flood-stage water level.
Know the history of flooding in your region, the warning signs of flooding, and the items you need to be prepared.
Keep disaster supplies on hand.

Liability coverage

Don't bypass this coverage. A successful claim could put you out of business in a heartbeat. This insures you against property damage or injury caused by something that your business did or perhaps didn't do. Let's get into some specifics.

A business owner's policy covers you for the following:

Premises and operations legal liability. This covers injuries or property damage on your premises. It also covers you for injuries or damages that occur outside your place of business.
Products and completed operations legal liability. This covers injury or property damage as a result of someone using your products, or real or alleged faults as a result of work your business has completed.
Fire legal liability. This pays for fire injuries and damage for which you are responsible and any fires that started due to your negligence.
Personal and advertising injury. This protects you from lawsuits alleging libel, slander or invasion of privacy.
Host liquor legal liability. This pays for when you are sued for hosting a party or special event at which you serve alcohol and intoxicated people cause injuries or property damage.
Medical payments. This pays medical bills when your customers, suppliers or visitors are injured on your premises or as a result of your operations outside your premises.

As with all insurance, you should make sure you have all the coverage you need before signing on the dotted line. For instance, business owner's policies typically exclude coverage for earthquakes and floods, which means you must obtain this coverage separately.

Where to get BOP quotes

Several Web sites will give you free on-line quotes for business owner's policy insurance. Two examples are MostChoice.com and Insurance Blues Survival Strategies (www.insurancesurvival.com).