Small Business Guide To Commercial Insurance

20 What Is a Business Owners Policy? Designed specifically for small businesses, a Business Owners Policy (BOP) is a combination commercial policy that covers property, general liability and business interruption. It is written with strict underwriting guidelines including maximum allowable square footage for office, retail, or apartment risks. A BOP is most appropriate for small, “main street” businesses such as: hardware stores, barbershops, greeting card shops, accountant offices, or low-density apartment houses. Discuss the option of a BOP with your broker-agent, as the premium for qualifying businesses can be very competitive. How Are Commercial Policies Rated, Deductibles Selected, and Premiums Developed? The way a policy is rated determines how the policy premium is developed. Rating factors vary based on the line of insurance you are purchasing. If you are purchasing commercial property insur- ance, the building rating formula is based on factors including square footage, type of construction, sprinklered or non-sprinklered, and the fire protection classification. If you are purchasing general liability insurance, the rating formula can be based on square footage, pay- roll, or gross sales depending on the general liability classification codes used. These are known as rating exposures. Once the rating exposures are identified and the deductibles select- ed (usually from information you have provided on the application), the premium is calculated by a simple formula: rate x exposure = premium. The deductible amount you choose will be calculated in the rate. The higher the deductible (the amount you choose to self- insure) the lower the rate. By utilizing higher deductibles, you can bring your premium cost down; however, you do not want to jeopar- dize your company’s financial future by choosing overly large deduct- ibles. Speak with your broker-agent for the deductible options avail- able to you when purchasing commercial insurance.