Small Business Owner's Package (BOP) Policy
Property Insurance Coverage
Property insurance may be one of the most important types of insurance in terms of financially protecting the property and physical assets of your business.
Types of Property to Insure
Types of Coverage Forms
Replacement Cost Coverage vs. Actual Cash Value
Exclusions
Types of Property to Insure
Types of property a business needs to insure include:
- Buildings and other structures, leased or owned
- Furniture, equipment, and supplies
- Leased equipment
- Inventory
- Money and securities
- Records of accounts receivable
- Improvements and betterments you made to the premises
- Machinery
- Boilers
- Data processing equipment and media, including computers
- Valuable papers, books, and documents
- Mobile property, such as automobiles, trucks, and construction equipment
- Satellite dishes
- Signs, fences, and other outdoor property not attached to a building
- Intangible property (goodwill, trademarks, etc.)
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Types of Coverage Forms
The BOP provides two basic property coverage forms: the standard (named peril) form and the special form. The standard named peril policy provides coverage for those perils specifically named in the policy. The special form policy covers loss by any perils not specifically excluded in the policy.
Basic Form Coverage
This coverage protects your business against these perils (cause of loss):
Fire, plus extended coverage, consisting of:
Lightning
Explosion
Windstorm or hail
Smoke
Aircraft or vehicles
Riot or civil commotion
Vandalism
Sprinkler leakage
Sinkhole collapse
Volcanic action
Broad Form Coverage - includes basic fire and extended coverages listed above plus:
Breakage of glass
Falling objects
Weight of snow, ice or sleet
Water damage (accidental discharge as a direct result of broken water system)
Special Form Coverage - includes basic form, plus broad form coverage plus:
This form covers any other loss, unless the peril is specifically excluded, such as flood, earthquake, war, nuclear accident, etc. Check you policy for a complete listing of perils excluded.
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Replacement Cost vs. Actual Cash Value
Both forms cover buildings and most business property on a replacement cost basis. Replacement cost coverage is what it actually costs to replace or restore the item without deducting for depreciation. Do not confuse replacement cost with actual cash value. Actual cash value is usually figured out by taking the replacement cost of the item and subtracting depreciation. For example if your 7-year-old desk that cost $500 was damaged in a fire, it might have depreciated 50 percent. Therefore, you would be paid $250 for it.
Owners of older buildings for whom replacement cost coverage may be difficult or too expensive to obtain might consider the actual cash value option. Actual cash value is offered as an option for buildings.
The property coverage under BOP automatically includes other people's personal property to the extent that the business owner is legally liable for the damage.
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Exclusions
The BOP special property form, like other all-risk type policies, covers all causes of loss except those specifically set out in the policy as exclusions. Exclusions listed include complying with local ordinances or other similar laws; earthquakes and landslides; government seizure of property unless such actions are taken in a fire emergency to prevent a fire from spreading; nuclear contamination or destruction; and military action.
Certain kinds of water damage are excluded. Damage caused by underground water seeping up through the foundation, sewers backing up or outside flooding, for example, would not be covered but water damage caused by frozen plumbing would be, as long as the policyholder had done his or her best to keep the building heated.
Other kinds of excluded losses fall under the catch-all phrase, maintenance-related; those due to wear and tear, vermin, corrosion and things that may happen to personal property in normal use. Also excluded, unless the policyholder elects to buy the optional employee dishonesty coverage, are thefts and embezzlement by employees and others to whom valuables are entrusted.
There are also some limits on the amount of coverage. For example, damage to steam boilers and pipes, hot water boilers and other heating equipment is covered only if it is caused by combustion explosion. BOP policyholders who need broader coverage for boilers should purchase the optional coverage, mechanical breakdown, which, together with the basic coverage for explosion, would provide the same kind of protection available under a separate boiler and machinery policy.
Coverage for glass broken by vandals is limited, as is the cost of replacing stolen patterns and dies, jewelry and furs.
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