General Liability Insurance vs. Business Owner's Policy

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Comparing General Liability Policies vs. Business Owners

 

When it comes to general liability insurance versus a business owner's policy, business owners should know that they share key similarities. General liability insurance provides basic liability protection for claims arising from bodily injury, property damage, and reputational harm. General liability policies typically pay for the injured party's medical and repair bills, plus their legal fees if they file a lawsuit.

A business owner's policy bundles general liability and commercial property insurance into one product. Commercial property insurance reimburses you for insured business property or assets that are lost or damaged by fire, theft, or windstorms. BOPs typically also include business interruption coverage to pay for ongoing expenses and lost income if a covered event causes you to temporarily stop operations. A BOP has the same protection as a stand-alone general liability policy and more. If you purchase a BOP, you don't need a separate general liability policy.

Here is a visual representation of the coverage provided by both policies:

 

Because BOPs bundle policies, insurance companies can offer them at a discounted rate, costing less than what you would spend on stand-alone policies. Both policies can also be customized with endorsements to meet your company's coverage needs.

How General Liability Insurance Works

General liability insurance protects your small business from third-party liability claims, including bodily injury, property damage, medical payments, and others, that may arise from business operations. It may also include claims for advertising damages, such as copyright infringement, defamation, and slander. General liability policies typically cover a business's legal defense and any settlements or judgments awarded to an injured party.

Typically, if a third party (i.e., anyone who doesn't work for your company) is injured in some way while doing business with you, your general liability insurance provides coverage. General liability insurance doesn't cover damage to your business property or assets, allegations of negligence, damage to customer property in your possession, or damage intentionally caused by your business.

Obtaining a general liability policy and a certificate of insurance to prove you are covered shows that your company is responsible, established, and credible. Customers are more likely to do business with you when they know you have liability insurance for financial protection.

How a business owner's policy works

A business owner's policy includes the same liability coverage offered in a general liability policy, including protection against liabilities such as injuries to third parties and property damage, reputational damage, and product-related claims. It also includes the commercial property insurance bonus for coverage of business property and the assets owned and used by your business.

Additionally, BOPs offer business interruption coverage for lost income and ongoing expenses when a covered event forces you to pause operations. Typically, insurers only cover these costs for 12 consecutive months, but they can help you pay for lost income, employee wages, rent, utilities, and relocation expenses.

BOPs are specifically designed for small or medium-sized businesses, depending on the operator. Your business must meet certain eligibility requirements to qualify for a BOP. These are typically based on revenue, industry, and number of employees.

Business Owner Policy Eligibility

A business owner's policy combines protection for property and liability risks into a single package. This package is typically sold at a premium that is less than the total cost of the separate policies. The specific coverage included in a BOP varies among providers, but most policies require businesses to meet certain eligibility criteria to qualify.

Eligibility Criteria for Business Owner Policy

 

Brandon Gehring, an agent with Insurance Werks Services , generally recommends that a company opt for a BOP when it's available.

“UNFORTUNATELY, BOPS ARE NOT AVAILABLE FOR MANY CLASSES OF BUSINESSES. CONTRACTORS, FOR EXAMPLE, ARE ALMOST EXCLUSIVELY WRITTEN INTO A STAND-ALONE GENERAL LIABILITY POLICY. MOST BRICK-AND-MORTAR ‘MAIN STREET’ BUSINESSES ARE ELIGIBLE FOR BOPS (E.G., FLORISTS, DRY CLEANERS, AND OFFICES).”

When to use general liability insurance

Most business owners need commercial general liability insurance because it covers the risks they face most often. In fact, it is called general liability because it covers the liabilities that businesses have in common. Although it is not a legal requirement, it may be required by customers and owners.

Your business may need general liability coverage if:

• Your business has constant traffic – let’s say a customer trips and falls at your business. A general liability policy can help pay for their medical treatment, and if they decide to sue your business for the accident, it can help pay for their legal defense.
• You or your employees visit clients: General liability travels with you when you visit clients or places of business outside of your primary business location. For example, if you damage a client’s property in their home, general liability has you covered.
• You want to get more clients: Clients often consider general liability coverage a prerequisite to working with you because they don't want to be held liable for the actions of your business.
• Your Landlord Requires You to Have It for a Lease: Do you rent or lease space for your business? Many landlords require general liability coverage to ensure they are not held liable for incidents your business is responsible for.

The amount of general liability coverage business owners need depends on risk exposure and contractual requirements. Generally, the riskier your business or industry is, the more coverage you need. Additional coverage options may be available depending on your insurer.

When to use a business owner's policy

Business owners often purchase a BOP instead of separate property and general liability policies to ensure they have the coverage they need. Even if your business has minimal property, you still want to make sure it is protected. You also save money by taking advantage of a BOP's discounted package.

A business owner's policy offers all the protection of a general liability policy, plus business property and business interruption coverage. If you qualify, it is often cheaper to purchase a BOP than to buy each policy separately. For small, low-risk businesses, a BOP is a great insurance package that offers more protection at a discounted price.

When to Add a Commercial Home Insurance Endorsement to Your Homeowners Policy

If your business operates out of your home, you may not need much of the packaged protection of a business owner's policy. However, most basic homeowners insurance excludes business liability coverage and only offers limited coverage for commercial property. Talk to your insurance agent about the possibility of adding a business endorsement to your home insurance .

By adding liability or property coverage as an endorsement to your homeowner's policy, you ensure that you have some protection for your business. A home business endorsement can increase business property coverage limits and address some business liability exposures. Many policies cover damage to business property owned or used by the owner for up to $2,500 on the premises or $1,500 off the premises.

General Liability Insurance vs. Business Owner's Policy: Covered Perils

When you're weighing coverage options for your small business, general liability insurance and BOPs have many of the same risks covered. This is because general liability is one of the policies included in a business owner's policy. However, BOPs also include commercial property coverage.

Risks covered by general liability insurance

General liability insurance is a vital business policy because it covers the risks inherent to most operations, namely damage to third parties such as customers and other visitors. That's why most business owners get general liability insurance.

Standard general liability coverage has three parts. These are:

• Bodily Injury and Property Damage: Medical or repair bills for someone who is injured on your premises or by your product or service and who does not work for your business
• Advertising Injury: Losses due to claims for defamation, libel, copyright infringement and more
• Immediate Medical Payments: No-fault coverage for immediate medical bills, such as an ambulance ride or an emergency room visit

Risks covered by the business owner's policy

Like general liability, BOPs cover allegations that your business caused property damage or physical harm to a third party. However, a business owner's policy has the added benefit of commercial property insurance to cover your business's property in addition to business interruption coverage.

A business owner's policy offers the following protection for small businesses:

• General Liability: Third-party claims involving bodily injury, property damage, and damage to reputation.
• Commercial Property: Damage to business property, including buildings and their contents.
• Business Interruption Coverage: Pays for lost profits and ongoing expenses if a covered event forces you to temporarily pause business operations.

General Liability Insurance vs. Business Owner's Policy: Costs

Depending on the size, type, or industry of your small business, as well as the coverage limits, the price of general liability insurance or a BOP varies. Insurance companies have different prices depending on the industry, but other factors also play a role.

General Liability Insurance Costs

Most small business owners can expect to pay between $400 and $600 per year for general liability insurance. Industry plays a big role in the cost of your premium. For example, retail stores and restaurants have a lot of foot traffic, so they often pay more for general liability. However, business consultants often pay less because they face a lower risk of lawsuits for damage or injury to third-party property.

Business Owner's Policy Costs

A business owner's policy, depending on your industry and risks, typically costs between $350 and $3,000 a year. While it's generally more expensive than a stand-alone general liability policy, you're getting additional coverage and protection included in a BOP: liability, business property, and business interruption. BOPs typically cost less than purchasing stand-alone business insurance policies, if your business qualifies.

General Liability Insurance vs. Business Owner's Policy: Eligibility

General liability insurance and business owner's policy cover many risks for small businesses, but not all businesses may qualify for coverage. Insurers typically reserve BOP for businesses with low revenue, small locations, and few staff because this minimizes the risk of claims.

Eligibility for general liability insurance

General liability insurance is a basic policy for small businesses, and most companies qualify for it. There is almost no situation or business that does not qualify for general liability, although high-risk industries may find that not all operators are open to providing coverage and may face higher premiums.

Business Owner Policy Eligibility

BOPs are a popular option for business owners looking for affordable coverage, but not everyone qualifies. Each carrier has different rules, but BOPs are typically reserved for small and mid-sized businesses in low-risk industries. Additionally, businesses typically need to have fewer than 100 employees, less than $1 million in revenue, and small retail spaces.

General Liability Insurance vs. Business Owner's Policy: Industries

Industry is an important factor that insurers evaluate to determine whether your business will qualify for general liability insurance or a business owner's policy. Your risks are often determined by the industry of your business.

General Liability Insurance Industries

Numerous industries qualify for general liability insurance because it is such a common protection. If your business is in a low-risk industry, such as accounting or consulting, your general liability costs may be lower because there is little foot traffic and a reduced risk of property damage. Home-based businesses and businesses with small offices are also considered low risk.

If you're in a high-risk industry, such as cleaning or construction, you'll see much higher costs because your job often involves a lot of foot traffic and visits to other people's property, as well as risky day-to-day operations.

Business Owner Policy Industries

Generally, only businesses in low-risk industries will qualify for a BOP. A business owner's policy has a cap on policy limits and is often only designed for smaller businesses. The cap is the maximum amount an insurer will pay on a claim. For example, an office-based business, such as an accounting firm, is generally considered low risk. However, a construction company is generally considered high risk due to job hazards and working with heavy machinery.

General Liability Insurance Example

Let's say you own a painting business and you travel and interact with clients regularly. If you're at a client's residence to paint and accidentally break a mirror, you could be sued for damages. With general liability, your policy can help pay for the repair or replacement of the broken mirror and any other property damage.

One thing to remember: General liability insurance does not cover any property your company owns. So if your assistant breaks an extension ladder, or you need to paint high ceilings or exterior walls, the cost to repair or replace your equipment would only be covered by commercial property insurance or the property coverage included in a BOP.

Sample Business Owner Policy

Let's say you own a hair salon. A storm knocks a tree into the roof of the salon, effectively halting all of your operations. A BOP includes business interruption coverage to help you pay your expenses while the salon is closed for repairs. That means you'll be able to pay for rent, employee wages, and lost income.

A BOP can even help pay for relocation costs to help you settle into a temporary space. A business owner's policy also covers bodily injury or damage to third-party property. And, if any items the salon owns are damaged when the roof collapses, the commercial property insurance in your BOP can help pay to repair or replace them.

Sample Homeowners Policy with Commercial Home Insurance Endorsement

Let's say you own a home-based business that sells hand-knitted goods online. This means you have regular deliveries and pickups at the post office, which generates a lot of foot traffic to your home. Because these deliveries and pickups are business-related, your homeowner's policy may not cover liability protection in these situations.

If a delivery person slips out of your home, your business could be held liable. By adding a home-based business insurance endorsement to your existing homeowners policy, you can have protection for these types of incidents. When in doubt, call your insurance company to see what home-based business coverage fits your needs.

Approvals for general liability policies and business owners

Depending on your business situation, your insurance company may offer additional coverage components to add to your general liability or BOP. Typically, the coverage limits for these endorsements are low, but they offer additional protection at a discounted price.

Below are some endorsements you could add to your policy:

• Rented and non-owned auto insurance: Covers legal expenses that arise when you or an employee have an accident with a rented, leased, or employee vehicle.
• Liquor Liability Insurance – Covers legal fees and medical costs if alcohol is sold to an intoxicated person who causes harm to others or damages property.
• Cyber ​​liability insurance – covers costs associated with a data breach or cyber attack.
• Inland Navigation Insurance – Covers commercial property, cargo or tools in transit.
• Professional liability insurance – covers legal fees when clients claim financial loss due to your negligence or mistakes (also called errors and omissions insurance).
• Spoilage: Covers the replacement of spoiled perishable inventory after a storage malfunction or power outage.
• Employee Dishonesty: Covers financial losses due to employee theft and other illegal activities.

Both general liability insurance and a business owner's policy are highly customizable, depending on your needs. Talk to an experienced insurance agent who is familiar with your industry to ensure you have the right coverage and learn about potential discounts.

General Liability Insurance vs. Business Owner's Policy Frequently Asked Questions (FAQ)

When considering general liability insurance vs. a business owner's policy, business owners may become confused because both are popular options that address their most common risks. Because they share similar qualities, business owners often have questions about how they work or whether it's a good fit for their business. Below are some frequently asked questions about general liability vs. BOP.

Can I customize a general liability policy or business owner's policy?

Both general liability and BOPs can be customized with most insurance companies. Ask an agent about endorsements that may benefit your business, such as cyber liability insurance for data breach protection or inland marine insurance to protect commercial property in transit. Keep in mind that coverage limits for these inclusions are typically low.

Does the law require general liability or BOP for my business?

You are not legally required to carry a general liability or business owner's policy. However, liability insurance protects against many common risks faced by business owners, so it makes financial sense to get a policy. Additionally, you may need liability insurance to apply for a professional license, sign a client contract, or enter into a lease.

Who is eligible for a business owner's policy?

To qualify for a BOP, a business must be in a low-risk industry (e.g., accounting or consulting), have few employees, occupy a small workspace, and have low annual revenue. Requirements vary among insurers, so you should speak with an agent to find out how your business can qualify for a discounted BOP package.

Conclusion

For small business owners just starting out, commercial insurance is a great investment to protect financial assets. General liability and BOPs offer valuable third-party bodily injury liability, property damage, and advertising injury coverage. BOPs include the added advantage of commercial property insurance and business interruption coverage at a discounted price in one convenient package.

Protecting your small business is simple with a customized general liability policy or BOP from The Hartford

. The insurer has small business specialists who can customize a policy for your unique business.