Is a Business Owners Policy Legally Required?

When researching insurance for your small business, you may come across what is known as a business owners policy, or BOP. There is often confusion surrounding this type of policy since it operates differently than individual insurance coverages.

It is important to note that a business owners policy itself is not legally required by any state or federal law. Some of the coverages available in a BOP, however, may be required.

What Does a BOP Cover?

The most basic business insurance policy combines two main coverages:

General Liability: General liability insurance covers claims against the business concerning bodily injury, property damage and personal and advertising injury. If someone is injured on your business’ property, general liability insurance can help pay for their medical bills as well as protect you against a lawsuit.
Commercial Property Insurance: Commercial property insurance covers the physical property owned by your business from damages such as fire, wind, hail, lightning, smoke, explosions, theft, vandalism and more. Items covered under property insurance can include a physical building and its attached structures, decorations, equipment and products.

You may be required to carry these coverages depending on where you operate, especially if your business has a physical location. If your business has a store or restaurant, you may be required to carry general liability and commercial property insurance. business meeting

However, this is simply an example of a basic BOP. BOPs are designed to allow small business owners to tailor their coverage specifically for their needs, meaning you can add different coverages to your BOP as needed by your company.

Depending on your industry and location, some coverages may not be optional.

Commercial Auto Insurance

While commercial auto insurance itself may not be legally required, all vehicles on the road must have the right amount of coverage as dictated by the state. If your business owns or uses vehicles for work purposes, you may need a business owners policy. In Illinois, for example, all vehicles—commercial or personal—must carry at least:

$25,000 in bodily injury liability per person
$50,000 in bodily injury liability per accident

$20,000 in property damage liability

Keep in mind that while these are the only requirements, higher coverage is often recommended in order to keep your vehicle and everyone inside covered.

Workers Compensation

Workers compensation insurance covers your employees in case they are injured on the job. If one of your employees is hurt at work, workers compensation insurance can cover their medical bills, wage replacement, disability benefits and more.

As with auto insurance requirements, legal requirements for workers compensation vary state by state. In Illinois, all employers with even a single part time employee must carry workers compensation insurance. Certain sole proprietors and business partners may choose to be excluded from workers compensation insurance.

Coverages Required for Certain Industries

In some circumstances, you may not be required by the state to carry insurance, but you could be required to purchase insurance in order to obtain certain licenses to operate. This may include:

Professional Liability Insurance: Professional liability insurance is known by different names depending on your industry, such as Errors and Omissions insurance or medical malpractice insurance. This policy covers claims against your business concerning professional negligence that may cause a client to lose money. If your business or employees plan to offer any sort of professional o specialized service, you may need this insurance.

Liquor Liability Insurance: Liquor liability insurance is necessary for businesses and individuals who wish to obtain certain liquor licenses. This insurance covers your business in case a patron who purchases alcohol that you sell or manufacture causes damage or injury. For example, if you own a restaurant and a patron leaves and causes an accident, this insurance can cover the damages or injuries as well as protect your business against a related lawsuit.

What Happens If You Don’t Have Business Insurance?

Since business insurance requirements vary per state, so do the possible repercussions for not carrying insurance. Generally you will face fines, warnings such as cease and desists, a stop of operations and even jailtime.

Even if you are not required to carry a business owners policy, a BOP is a useful way to combine important coverages in a cost effective way by bundling coverage into a cheaper policy. If you have a small business in a low risk industry, shop around and ask an insurance agent about possibly purchasing a business owners policy. There are several coverages you can add to tailor this type of policy for your business’ insurance needs.

Is a Business Owners Policy Legally Required?

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