Business Overhead Expense Disability Insurance
If a small business owner experiences a disability, the entire business may be in jeopardy. Business overhead expense disability insurance provides important protection. Any small business owner who needs to be working to keep a business afloat should consider purchasing this coverage. Business overhead expense insurance, or BOE insurance, is a type of disability insurance policy designed for small business owners. If the business owner experiences a covered a covered disability, the benefits can pay for overhead expenses up to the maximum monthly benefit.
Insurance provides short-term coverage, with a benefit period of usually 12 to 24 months. This gives the business owner time to either recover and return to work or make other arrangements for the business.
But why is this protection so crucial? Many thriving businesses face turmoil when their leader can’t work due to illness or injury. Without proper safeguards, overhead expenses can quickly accumulate, pushing the business past the brink of financial viability.
By investing in business overhead expense insurance, you’re not just covering immediate costs—you’re buying time.
What Business Expenses Does the Insurance Cover?
Business overhead expense disability insurance covers many common overhead expenses. Disability insurance companies might offer slightly different terms, but they typically cover:
- Employee salaries
- Payroll taxes
- Rent
- Utilities
- Property taxes
- Office equipment expenses and maintenance
- Interest payments on certain types of debt
- Professional membership dues and subscriptions
- Accounting fees
- Insurance premiums for employee benefits
Although business overhead expense insurance covers many of the costs associated with running a business, it does typically exclude some expenses. For example, most policies do not cover income tax or the cost of inventory.
How Business Overhead Insurance Can Save Businesses
Imagine you own a small accounting firm. You’ve hired another accountant as well as an assistant, but you handle all the large accounts yourself. Then you experience a minor stroke. You’re expected to make a full recovery, but this will likely take several months and you’re in no condition to work until then. Right now, you need to focus on your health. In the meantime, your business is struggling. You’re not bringing in revenue, but you still have to pay rent, utilities, employee salaries, and other ongoing business expenses. The business may go bankrupt before you can return to work – and the stress is making it harder for you to focus on your recovery.
Business overhead insurance can be a lifesaver in situations like these. The benefits can cover your overhead costs, allowing you to focus on your health without worrying about how you’ll pay rent or salaries.
Who Needs Business Overhead Expense Coverage?
Business overhead expense insurance is suitable for many small business owners, including accounting firms, dentist’s offices, auto repair shops, bakeries, and many other types of businesses. To determine whether you might benefit from coverage, ask yourself the following questions:
- Do you have significant overhead expenses? This could include rent, utilities, salaries for employees, and other ongoing costs. If you have such expenses, you may need insurance.
- Would revenue stop or decrease if you could no longer work? If your business would experience financial hardship in your absence, insurance could provide important protection.
- Does your business have enough funds to cover up to two years of overhead expenses without additional revenue? If you don’t have the funds set aside – and many businesses don’t – acquiring insurance coverage may be a smart move.
Insurance companies may have restrictions on who is eligible for coverage. For example, you may be unable to buy coverage if you work from home. Business owners who are aged 65 or above or who don’t generate a certain amount of revenue may also be denied coverage.
Understanding the Reimbursement Process for Business Overhead Expenses
Business overhead expense insurance covers eligible operational expenses on a reimbursement basis. Understanding how the reimbursement process works is important to ensure that you have the coverage you need in place.
- Business overhead expense insurance policies typically have an elimination period, also known as a waiting period. During this period, you will not receive reimbursement for your overhead expenses.
- Once the elimination period is over, the benefit period begins. Most business overhead expense insurance policies offer benefit periods of 12 to 24 months. During the benefit period, you will receive reimbursement for your eligible overhead expenses.
- Each month during the benefit period, you will need to submit records of your expenses so you can receive reimbursement. After the insurer approves the amount, you will receive your payout.
- Only covered expenses are eligible for reimbursement. See your policy for details.
- Your reimbursement will be capped at your coverage amount. Make sure your coverage amount is high enough to cover your monthly expenses. As your business grows, you may need to update your coverage to secure higher limits.
Does BOE Insurance Cover the Business Owner’s Personal Expenses?
- Business overhead expense insurance covers many things, but it does not cover the business owner’s personal expenses.
- If you experience an illness or injury, both you and your business may suffer financially. You may be dealing with out-of-pocket medical costs and will likely still be incurring expenses for your mortgage, utilities, groceries, and other bills.
- Although business overhead expense insurance does not cover these personal expenses, you can secure coverage by purchasing an individual disability insurance policy. This policy will provide you with a monthly benefit you can use however you see fit.
How Much Business Expense Insurance Do Business Owners Need?
- You don’t want to pay for more coverage that you need, but you don’t want to end up with an insufficient benefit amount, either. When deciding on a benefit amount, it’s important to calculate the business’s overhead expenses.
- Look at what expenses the policy covers. Then, add up your average monthly costs for each type of expense. The total is how much you’ll need the monthly benefit to cover.
- Over time, your business expenses may change. For example, if you move into a bigger office or hire on additional workers, your monthly costs may increase. For this reason, you should reassess your coverage occasionally.
Are Business Expense Overhead Insurance Premiums Tax Deductible?
- As many small businesses operate on thin profit margins, business owners may be worried about the cost of buying an additional insurance policy. The good news is business expense overhead insurance premiums are typically tax deductible. Since this tax deduction can help make coverage more affordable, it’s important to be aware of it.
What are common waiting or elimination periods for business overhead expense insurance?
- When comparing business overhead disability insurance policies, you’ll encounter common waiting periods, also called elimination periods. Typically, these periods are set at 30, 60 or 90 days. During this time, the policyholder must wait before benefits begin to be disbursed.
- This waiting period is crucial for business owners as it determines how long they must cover expenses out-of-pocket before the insurance takes effect. The waiting period and the premium cost typically have an inverse relationship; longer waiting periods are associated with lower premiums costs, and vice versa. Therefore, business owners must consider how long they will be able to keep their business afloat without benefits carefully.
What Other Disability Insurance Products Do Business Owners Need?
Business owner expense insurance is an important disability insurance product for many small business owners, but it may not be the only disability insurance policy you need.
- Bank loan disability insurance can cover bank loan payments if you experience a qualifying disability.
- Disability buy–sell insurance can fund the disability buy–sell agreement triggered when one of the partners experiences a disability and needs to exit the business.
- If you rely on one or more key employees, you may need key person disability insurance. This helps the company cover costs and lost revenue if a covered employee experiences a qualifying disability and cannot work.
- Business owners who want disability coverage for themselves, their partners, or their employees may be interested in individual disability income insurance. You may receive a multi-life disability insurance discount when purchasing coverage for multiple people at once. Another option for groups of employees is guaranteed standard issue disability insurance.
Are You a Business Owner?
The Social Security Administration says a 20-year-old has a one-in-four chance of becoming disabled before turning 67. Protect your business against this risk with business overhead expense insurance. An insurance agent can help you explore your options and find coverage that meets your needs. Find an agent.
Are You an Insurance Agent?
Disability is a common occurrence that can force a business into bankruptcy. If you have business owners among your clients, help them gain protection by offering business overhead expense insurance. Get a quote.
