BOP vs Package Policy for an Acquired Business

Keep the business owner's policy (BOP) if the company you bought is small, lower hazard and simple enough to fit your carrier's BOP program. Consider a commercial package policy, which is built from separate coverage parts, when you add locations, entities, higher-hazard work or contract and lender requirements the BOP cannot accommodate. A BOP is a pre-assembled package of property, business income and liability coverage for eligible small businesses. This guide is for buyers deciding whether to keep, move into or move out of a BOP.

What is the difference between a BOP and a commercial package policy?

Both are package policies, meaning one policy document set that combines property and liability coverage. The Insurance Information Institute describes a BOP as one package bought by small and mid-sized businesses that face similar kinds and degrees of risk. A commercial package policy (also called a commercial multiple peril policy) is a package that provides liability and property coverage for businesses and other organizations. A BOP is a pre-built product for eligible businesses. A commercial package policy is put together from coverage parts you choose, such as general liability and commercial property, under common policy conditions. This is how the two products are generally described, so check the forms your carrier actually uses.

The Insurance Information Institute also states that BOPs do not cover professional liability, auto insurance, workers' compensation or health and disability insurance. Some carriers offer endorsements that add things such as hired and non-owned auto or employment practices liability, but those are add-ons. For the library overview, see business owner's policy and the plain-language BOP vs commercial package policy comparison.

How do the two compare for a company you just bought?

Business income responds to direct physical loss, such as a fire, plus some extensions the policy lists, not to losing a key person or a customer. Price is left out of the table because it depends on the business, the carrier and the class. Do not assume either type costs less until you compare quotes built on the same exposures and limits. For what each type tends to cost to buy, see the BOP insurance cost guide.

Is the business you bought still eligible for a BOP?

If you bought assets, the seller's BOP generally cannot move to your new company without the insurer's written consent, so the first question is whether your new entity has its own policy at closing (see keep the seller's insurance or start over). In a stock purchase the same company keeps its policy, and the carrier may review the account after a change in ownership.

BOP eligibility is set by each insurer. No single size or revenue limit applies everywhere. Secondary sources describe a common Insurance Services Office (ISO) program as limiting eligible risks by building size and annual sales per location, with class-specific rules for businesses such as contractors and restaurants, but many carriers write their own BOPs with different rules, so check the carrier's current guide. BOPs are meant for smaller, lower-hazard businesses, and eligibility depends on the carrier and the class.

The seller's BOP was approved for the business as it was. Your plans can change that. Ask the carrier, in writing, how it reads eligibility for the company you now own and for the changes you expect, such as new services, a second location or an add-on.

What are the signs the company has outgrown its BOP?

These are prompts to raise with your broker, not tests that decide the answer:

• More locations. A second site can change the carrier's eligibility view and the limits you need.
• More legal entities. A company you form or buy as a limited liability company (LLC) usually has to be added by name. Standard ISO wording for newly acquired organizations leaves out LLCs, partnerships and joint ventures. Ask whether your BOP has a newly acquired organization endorsement at all (see adding a newly acquired company to your policies).
• Higher-hazard operations. Work the carrier treats as a bigger risk can fall outside its BOP program.
• Contract wording. Customer and lease contracts can require specific endorsement forms or per-project limits that a BOP may not offer. An umbrella can often sit over a BOP, but the umbrella carrier must accept the BOP as underlying, so ask. See checking customer contracts against your policies.
• Higher liability limits. If you need more liability protection than the BOP's options give, see higher limits vs an umbrella.
• Lender requirements. Your lender may ask for specific wording or limits. The Small Business Administration (SBA) sets hazard insurance rules for 7(a) loans, and extra requirements such as business income or higher liability limits are generally the lender's call (see SBA lender insurance requirements).
• Lines a BOP does not include. If you have employees, workers' comp is usually required and is written separately under either structure (the rules vary by state, so confirm with your state regulator or broker). Owned vehicles and professional services are usually written separately too, though some commercial package policies can include them.

What happens when an add-on does not fit the BOP?

A hypothetical example. A buyer purchases a small business that has one location and an existing BOP. The BOP fits: property, business income and general liability sit in one policy and the owner has one renewal to manage. Eighteen months later the buyer adds a second company through an add-on, formed as its own LLC, with a larger warehouse and customer contracts that require a specific additional insured endorsement and an umbrella. The carrier's BOP program treats the add-on's class as ineligible. The buyer keeps the original BOP and places the add-on under a commercial package policy with its own property and general liability parts, then reviews both under a common plan. The outcome here depends on the carrier's rules, the add-on's class and underwriting, not on a standard answer.

How do you switch without leaving a gap?

1. Collect the declarations pages and forms schedule for the current policy so you know what you are leaving, including endorsements.
2. Ask for the carrier's eligibility guide and its position on the changes you plan.
3. Match the new policy to the old one on named insureds, locations, limits, business income terms and lender clauses such as a loss payee or mortgagee, before you compare price.
4. Check built-in extras: business income extensions, equipment breakdown, data and utility coverages, and any claims-made endorsements. A package policy may need these added as separate parts, and the retroactive date must carry over (see tail vs nose coverage).
5. Bind before you cancel. A quote or application is not coverage. Wait for written confirmation from the carrier that the new policy is bound, with a date and time, and then cancel the old one. Before cancelling, ask the old carrier about its cancellation terms and any return premium, and check whether your lender must be notified.
6. Reissue certificates to landlords, customers and lenders after the change.
7. Diary the next review at renewal or after the next acquisition.

To judge whether a change is worth pursuing now or at renewal, see how to remarket inherited insurance. For the opposite move, see can you package your policies into a BOP, and for the wider choice, one insurance program vs separate policies. For the full list of documents to gather first, see the insurance checklist for buying a business.

Can Morrow review our BOP?

Morrow is an independent insurance agency focused on business insurance. It is licensed in Arizona, California, Colorado, Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia. Morrow can review the declarations pages and forms of the BOP or package policy you inherited, flag where the business may have outgrown it and request quotes for either structure. It does not issue policies, and eligibility, terms and price depend on carrier underwriting. A quote or review request is not coverage until a carrier binds it. Confirm any broker's license, Morrow's included, on your state insurance department's lookup. If you need very large or highly complex programs, or you are in a state where Morrow is not licensed, look to a broker licensed in your state with experience in that kind of account.

Keep reading

• Can You Package Your Policies Into a Business Owner's Policy (BOP)?
• One Insurance Program vs Separate Policies per Company
• Raise Your Liability Limits or Add an Umbrella After an Acquisition?
• Adding a Newly Acquired Company to Your Existing Policies
• New Owner Review: Commercial Property
• All guides for new business owners

Frequently asked questions

Does a BOP cover workers' comp or my vehicles?

No. A BOP usually leaves out workers' compensation, owned commercial auto, professional liability and health and disability coverage. Some carriers offer endorsements for hired and non-owned auto or employment practices liability. A commercial package policy also needs workers' comp written separately, and what else it can include depends on the carrier. Check the policy wording and endorsements.

How big can a company be and still qualify for a BOP?

There is no single standard. Eligibility comes from each insurer's program rules, including the class of business, location size and annual sales. Ask the carrier for its eligibility guide in writing and tell it about your plans, such as new services or locations.

Is a commercial package policy better than a BOP for an acquired company?

Not automatically. A BOP can be a sensible fit for a small, lower-hazard company. A commercial package policy gives more room to adjust limits and coverage parts, which can matter as the company adds locations, entities or contract requirements. Fit depends on the business and the carrier's rules.

Will my BOP cover a company I acquire later?

It depends on the policy. Some carrier forms or endorsements add automatic coverage for newly acquired organizations for a limited time, and the standard Insurance Services Office wording carves out LLCs, partnerships and joint ventures. Check the forms schedule and ask the carrier to add the new company by name.

Should I move from a BOP to a package policy mid-term?

Not necessarily. A mid-term switch has its own costs and timing risks. Often the review is cleaner at renewal unless a change in your operations, a contract or a lender requires action sooner. Bind the new policy before you cancel the old one.

References

• Insurance Information Institute: What does a business owners policy (BOP) cover?
• IRMI: Businessowners policy
• IRMI: Commercial package policy
• ISO form BP 04 54 01 06, Newly Acquired Organizations (businessowners endorsement)
• U.S. Small Business Administration: SOP 50 10, Lender and Development Company Loan Programs

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.