Brokers, if you have clients who are small business owners, you know that the owner is the heart of the business. In many cases, the business would have trouble continuing if the owner was unable to work. Likewise, the owner would have trouble paying his personal bills if his business could not continue.
Fortunately, disability insurance offers solutions for both of these challenges. An individual disability insurance policy protects the owner’s earning power while a business overhead expense insurance policy helps the business pay its bills.
Business Overhead Expense Insurance Definition
Business overhead expense insurance, or BOE insurance for short, is a type of disability insurance policy designed for small business owners. If the business owner is unable to work due to a disability, the BOE policy provides monthly benefit payments to cover overhead costs and the business remain open.
If your business owner clients don’t have BOE coverage, now is the time to cross-sell this important protection. Below are answers to some of the frequently asked questions about BOE.
1. Who does BOE cover?
BOE insurance covers business owners, especially small to medium business owners running companies that depend on their involvement. Policies can typically be renewed each year until the business owner turns 65.
For example, let’s say Sam owns a catering company. He has hired two assistants, but he does the majority of the cooking himself. Then he’s diagnosed with cancer, and he has to take time off to focus on his treatments. During this period, his BOE policy can cover his company’s monthly payments so he doesn’t have to close the business he worked so hard to build.
2. What does BOE protect against?
BOE protects against covered injuries and illnesses. If an insured business owner is unable to work because of a covered disability, the policy will provide monthly payments to cover business overhead expenses and help keep the business running.
3. What business expenses does BOE cover?
BOE benefit payments can cover many of the expenses needed to keep a business operating. These expenses may include rent, utilities, salaries, office equipment expenses, accounting fees, payroll taxes, property taxes, professional membership dues, professional subscriptions and insurance premiums for employees.
When determining an appropriate maximum monthly benefit, business owners should add up all of their covered expenses. As a business grows, and as inflation impacts business operations, these expenses will likely increase, so it’s important to reassess the coverage amount periodically and increase it as needed.
4. What business expenses aren’t covered by BOE?
BOE policies do not typically cover inventory costs. While some taxes – like payroll and property – may be covered, income tax is generally excluded. Additionally, BOE covers the salary of employees, and in some cases, it may even cover the salary of a worker hired to replace the insured, but it does not provide payouts to replace the insured’s personal salary.
5. How long will BOE pay benefits?
BOE insurance is designed to cover temporary disabilities. Policies typically provide benefit periods between 12 and 24 months. This gives the business owner enough time to recover or to make other arrangements for the business, such as hiring a replacement worker or selling the business.
6. What is the elimination period?
The elimination period is a waiting period that starts when the insured becomes insured and ends when the insurer begins payouts. BOE policies typically have elimination periods that are 30, 60 or 90 days long, and the business owner will not receive benefits during this time. For businesses operating on a tight budget with small reserves to cover ongoing expenses, a short elimination period may be ideal, although this can raise the BOE premium.
7. How much does BOE pay out?
If the insured experiences a qualifying disability, BOE insurance will provide a monthly payout. This payout will cover all qualifying expenses up to the monthly maximum.
BOE policies typically work on a reimbursement basis to cover actual expenses, providing a reimbursement for 100% of covered expenses, up to the benefit maximum. If the maximum benefit amount is not used in a given month, the policy may allow the unused portion to roll over to the next month. This can be helpful for business owners with fluctuating expenses.
8. Are there any tax breaks for the business owner?
BOE premiums are a business expense. As such, they can be tax deductible. Brokers should make sure to tell their business clients this when discussing coverage and costs. The BOE insurance tax write-off may make coverage more affordable for business owners who would balk at the cost of BOE insurance otherwise.
9. How does BOE differ from disability insurance?
Disability insurance and BOE insurance are similar, but they are not identical. Both provide coverage in case the insured experiences a disability. However, personal disability insurance provides payouts to replace the insured’s income and protect personal finances, while BOE insurance provides payouts to keep the business operational.
BOE insurance does not cover the salary or personal expenses of the business owner. It’s designed to keep the business afloat during a period of disability; it is not designed to help the business owner with mortgage payments, utilities, groceries and other living expenses.
10. Should business owners have both BOE and disability insurance?
Because disability insurance and BOE cover different expenses, it is important for business owners to maintain both types of coverage. They need to protect both themselves and their business.
Ready to tell your business owner clients about this important added protection? Download our “What’s Covered by BOE?” handout today.
