Small business owners enjoy being their own bosses, setting their own schedules and achieving their own goals. They also take on considerable risk and responsibility. According to the Small Business Administration, data from the Bureau of Labor Statistics shows that approximately one-third of businesses with employees fail within the first two years, while approximately half fail within the first five years.
Businesses fail for many reasons, but disability is a risk that many business owners may fail to take into account. Without careful planning, a disabling injury or illness of the owner, owners or key employees may spell the end of a business.
Business Overhead Expense (BOE) disability insurance can minimize this risk. The following stories show how BOE coverage can help people in different situations.
David – Business Owner
After many years of singlehandedly building a successful business, David realized that for the business to grow, he needed to hire some employees. He brought on four employees, and these employees depended on David and his business for their income. Then David was diagnosed with cancer and no longer able to spend as much time on his business as he used to. Both the business and the employees’ jobs seemed to be in jeopardy.
Sarah – Entrepreneur
Sarah was a bright, energetic entrepreneur and the sole provider for herself and two children. She manufactured pins, hair clips and earrings in a converted warehouse space in her community’s thriving arts district. Then Sarah’s injuries from a car accident limited her ability to make the jewelry items. She had enough product in inventory to sustain her income for several months, but not enough to continue to pay rent, utilities and suppliers during her hiatus. Plus, she didn’t want to lose the coveted space she rented.
Charlene – Sales Professional
Charlene was an essential member of the sales team for a small restaurant supply business. Year after year, her sales skills and customer relationships contributed to sales growth and increased earnings. One morning she began to feel under the weather. The next day she was in the emergency room due to a rare bacterial infection. Many months later, Charlene was just beginning to feel well enough to return to work. Thankfully, Charlene had good health insurance and an individual disability policy. However, her illness was a serious blow to the restaurant supply business. New sales declined during her absence, and without her product suggestions to current clients, the average order value slumped. The business owner faced declining profits and reduced cash flow while waiting for Charlene to recover.
Three Problems – One easy solution: BOE disability insurance
Each of these stories shares a similar theme: Someone essential to keeping the business viable became disabled and the unplanned absence put the business at risk. There is another common thread. These business owners had the benefit of working with a savvy financial advisor who recommended Business Overhead Expense (BOE) disability insurance.
BOE is a type of disability insurance designed to help pay business expenses if an owner becomes disabled. BOE can also provide benefits to cover business expenses if a key person – like Charlene – becomes disabled. Unlike individual disability insurance, BOE insurance does not provide an income benefit to the disabled party.
BOE disability insurance benefits pay many of the typical business expenses, like Sarah’s rent and utilities. BOE also for the things David was worried about: employee salaries, benefits and payroll taxes. It can even cover interest payments on certain debts, property taxes, insurance premiums for workers’ compensation and employee benefits.
Benefit periods and elimination periods are typically short-term. BOE policies usually offer 30-day, 60-day, or 90-day elimination periods and a maximum two-year benefit period. A maximum monthly benefit is also common.
BOE offers attractive taxation benefits. BOE premiums are tax deductible as a business expense. The benefits are tax-free, and the business expenses paid by the benefit are typically still considered deductible business expenses.
BOE rates are typically less expensive than individual disability insurance premiums.
After reviewing these scenarios, can you think of any business owner clients who might benefit from Business Overhead Expense disability insurance? DIS offers several ways to become more familiar with BOE insurance. First, watch our BOE introductory video. Then, review more BOE information and resources and download this client handout on 16 expenses that are covered by BOE.