When you have a small business, you want to insure it in the most-cohesive and applicable ways. A business owners policy — also called a BOP — is one of the main ways that small operations get coverage. These policies can pay up to certain limits for several types of losses that might occur within the business. However, some of these elements of coverage will have deductibles attached. As an insured owner, you must be ready to pay the deductible in the event a claim occurs. Consider the ways you need to set the deductible to your advantage.
Coverage Within BOPs
BOPs are packages of insurance that contain several essential types of coverage that most small businesses need. Usually, they include:
Each policy will apply in different situations. For example, if someone falls in your store and gets hurt, then liability insurance can pay for that person's losses. However, if a fire or storm damages the business, then property coverage can pay for the related losses.
However, property insurance is unlikely to pay you 100 percent of the costs of a loss. This is likely because this portion of your coverage will have a deductible attached. By having a deductible, you free the insurer from having to pay certain costs. All the same, you agree to take on these costs yourself.
A deductible is the amount of money that you agree with the insurer to deduct from the total cost of a claim. By covering this expense, you free the insurer from having to pay you this cost as a result of a claim.
Here's how deductibles work. Suppose that a fire occurs in your business, causing $10,000 in covered damage. However, attached to your property insurance, you have a $2,000 deductible. The insurer will then agree to pay you only the cost of the damage minus the deductible. Therefore, they will subtract the $2,000 from the $10,000, for a total payment of $8,000.
The standard BOP has a deductible of $500. However, if you increase the deductible (to $750, $1,000 or more), then you might qualify for a lower premium. That's because, by raising your own cost burden, you shift cost risk away from the insurer.
Not all portions of your BOP will include deductibles. Liability coverage often doesn't have a deductible, for example. However, for the portions of your policy that do have this attachment, always make sure that you can afford to pay the deductible in case of a claim. If damage costs fall below your deductible costs, then your policy won't pay, and you must do so yourself. Don't put yourself in a position of not being able to pay.