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Business Overhead Expense Disability Insurance: Pros and Cons

Researcher & Writer
December 19, 2019

Disability income insurance helps replace your paycheck if you become disabled and can't work. But if you're a business owner, you may also need to protect your company. The reason for having Business overhead expense (BOE) insurance is to continue paying business expenses that don't stop if the owner becomes disabled due to sickness or an accident.

In the following article we will address the need for insurance covering business overhead expense, what it covers, the pros and cons of BOE insurance, and our picks for the best business overhead expense insurance companies.

What does BOE insurance cover?

BOE insurance covers business overhead expenses, such as:

  • Rents and Leases;
  • Utilities, such as phones, water, electric, heating;
  • Different business insurance policies, such as property and casualty, liability and malpractice insurance, worker’s compensation;
  • Employee salaries and benefits;
  • Property taxes;
  • Interest payments;
  • General office supplies;
  • Accounting and legal fees;
  • Etc.

Is BOE for a Business Owner or Key Person?

If the business owner is disabled, business expenses would be reimbursed for up to the maximum income benefit in the policy, based on actual expenses incurred for that month. In addition, if a key person has a policy, business expenses would be provided for up to the maximum income benefit in the policy. So, the business expenses can be covered for both a business owner disability or a key person disability.

Business owners, that either are solopreneurs or entrepreneurs with a small staff, such as CPAs, doctors (physicians, pediatricians, dentists, etc.) engineers, attorneys, etc. should consider business overhead expense disability insurance.

Business overhead expense insurance companies

The following are our current favorite insurers. To find out which of these top-rated business overhead insurance companies is right for you, please give us a call today. We work with many of the best disability insurance companies in the U.S.

Business Owner Expense Insurance is one of six areas every self-employed business owner and entrepreneur need to consider.

Business overhead expense insurance pros & cons

  • Pros
    • You can avoid using your nest egg or credit to pay your business overhead costs.
    • Your business will continue and debts and overhead costs will be minimized, if you or a key person becomes disabled.
    • You will be able to avoid a business fire sale. Instead, you will have time to find the right buyer, at the right price.
    • Your business overhead expense insurance premiums are tax deductible to your business.
    • Your business overhead costs will be taken care of, relieving you of undue stress and anxiety.
    • You can continue to pay employee salaries and benefits, so they stay around while you heal or sell the business.
  • Cons
    • Since your premiums are tax deductible, any reimbursement benefits paid to your business are taxable.

Business overhead expense policy benefits

To file a BOE policy claim, you must be unable to perform your business duties under an own occupation disability definition.

A business overhead expense insurance claim works by the business continuing to pay business expenses and then submitting those expenses to the insurer, which pays via a reimbursement benefit to the business.

Your policy will pay for business expenses after the elimination period ends. You can choose elimination periods ranging from 30, 60 or 90 days. Longer elimination periods force you to wait longer to receive your reimbursement income benefit, but the premiums are lower.

Benefit periods are typically 12-24 months. The insurance is a short-term solution. The shorter the benefit period, the lower the premium. However, you must weigh that against the risk of having too short of a benefit period.

Your agent will work with you to design your policy to either receive the maximum benefit possible, lowest benefit to save on costs, or somewhere in between.

And remember, just because your business expenses are being paid does not mean you sit back and relax. You must have a business continuation plan or business succession plan in place already. Like the saying goes, if you fail to plan, you plan to fail.

Who should consider Business Overhead Expense Insurance?

Here are some questions to help you decide if BOE insurance is right for you and your business.

Do you have a replacement for your key person? How long would it take to find a replacement?

If you are unable to work and guide the business, can it survive? Can you continue to pay your salary and your employees if you are disabled?

If you are permanently disabled and unable to return to work, do you have enough money set aside, or are current cash flows and profits sufficient to protect your business from being sold as a fire sale?

Business Overhead Expense Insurance Vocabulary

You should be aware of the following BOE insurance terms:

Noncancelable – a policy is noncancelable if the premiums remain fixed until the policy ends. Typically, the BOE insurance extends to age 65 or to age 67.

Waiver of premium—If you are disabled for 90 days your insurance premium will be waived if you continue to be disabled.

Guaranteed Insurability – if you choose this optional rider, you can add additional coverage without evidence of insurability.

Six types of business owner insurance:

  • Business overhead expense
  • Business loan protection
  • Key person
  • Buy sell
  • Salary continuation
  • Individual policy

Business Overhead Expense

Business overhead expense insurance pays for expenses associated with your business. If you want to protect the viability of your business if you are disabled, business overhead expense insurance is crucial. If you are unable to return to full-time work or if your disability is permanent, a BOE insurance policy allows you time to find a proper buyer and price for your business.

Business Loan Protection Insurance

Business loan protection insurance should be considered if you have a small business loan or SBA loan. If you are disabled, the insurance can help you pay your business loan, so you do not default on the loan and lose your business. Also, consider life insurance for an SBA loan as another way to give a potential lender peace of mind, increasing your likelihood of qualifying for your business loan.

Key Person Insurance

Key person insurance is coverage on the life of a key man or key woman. This is the person who holds your company together. It can be a top salesperson, top engineer, or top executive. Getting business overhead insurance, AKA, key person disability insurance, is critical in protecting your business when your key person goes down due to death or disability. The influx of cash into your business at this crucial time is essential to keep your business running until your key person can rehabilitate, you find a key person replacement, or you sell the business.

Buy Sell Agreement Insurance

Buy sell insurance is important if you have business partners. You can get insurance on each business owner, both life insurance and disability insurance, and create a buy sell agreement that provides cash to the business to buy out the deceased or disabled business partner.

Salary Continuation

As a business owner, how can you pay your employee if you become disabled? Business overhead expense insurance can provide for an employee’s salary while you are on the mend.

Individual Disability Insurance

And don’t forget to add individual long-term disability insurance to the list of important coverage. Having your own private disability insurance policy will provide an income benefit to protect your income if you are disabled due to sickness or injury.

How to Buy Business Overhead Expense Insurance

  1. Ask yourself if you need a business overhead expense insurance policy. If you are a sole proprietor working from home, probably not. If you have an office, particularly if you have employees, than probably yes.
  2. Add up all your monthly expenses by putting together a business overhead expense worksheet.

So what are you waiting for? Give us a call today to see what we can do for you!

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We are a team of life insurance experts with the simple mission of helping you find the best coverage for your unique situation. We research, review, and rank life insurance companies to make that process easier.