The Limits of Property Insurance in BOPs

The Limits of Property Insurance in BOPs

owner of a flower shop outside the store Small business owners need insurance that is easily manageable, coordinated and affordable. The solution for many is a business owners policy (BOP). This is a package of essential benefits that most small business owners need, and the coverage within is tailorable to each policyholder’s advantage. One of the pieces of coverage offered by most BOPs is property insurance.

With commercial property insurance you can protect company assets from buildings to stock, inventory, equipment and furnishings throughout the business. However, with as much benefit as this coverage can provide, it will also have its limits. It is important that you are as aware of the limits of property insurance as you are of the benefits.

By knowing where your plan doesn’t provide coverage, you’ll be able to work with your insurance agent to improve and expand your BOP to your advantage.

Some of the restrictions on BOPs include:

1. Coverage Limits

Your BOP will not provide unlimited funds for property damage claims. Usually, it will pay for damage to structures on the property at their replacement cost value. This is the cost necessary to rebuild the business at today’s prices. If your policy limit doesn’t adequately reflect this value, then you might not receive full compensation for your losses.

For contents of the business, coverage usually is limited to actual cash value coverage. You will only receive compensation based on the used value of an item at the time damage occurred. This might not be the full cost necessary to buy an all-new item.

2. Deductibles

Most property coverage will include deductibles. For example, if you have a $1,000 deductible on structural damage, then you must pay the first $1,000 of repair costs before your insurance pays the rest. If a claim falls below your deductible value, then you will have no assistance from your insurance.

3. Exclusions

A BOP’s property insurance does not cover all types of losses you might experience in your business. These are exclusions, and your plan will define them. Common exclusions are:

Certain possessions, particularly unique or specialty equipment of high value.
Limits on the perils that will qualify for a claim. Your plan will not cover normal wear and tear, and most plans will not cover flooding from bad weather.
Outdoor items like signs, or certain fixtures both inside and outside the business.

Some plans will specifically list the perils and property they will cover, stating that any unlisted perils are not covered. Others will specifically list exclusions and say that any hazards that are not listed are covered. Therefore, carefully review your plan with the help of your agent to determine where you need to make changes to your advantage.

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