If you’re a business owner and you become too sick to work, or disabled for a long period of time, you need a way to keep your business running. You still have employees, vendors, customers – they all rely on your business for something and you need to make sure that your business can keep providing that service or product for them, regardless of your health.
What is Business Overhead Expense Insurance?
Business Overhead Expense Insurance (or BOE) is similar to a Personal Disability Insurance policy, but it’s specifically designed to protect your business. Without getting properly insured, you might have to go into debt or dip into personal funds to keep your business afloat – worst case scenario, you have shut down your business or sell it off.
With BOE, for every month of your coverage period, your business will receive a benefit payment so it can continue to meet its fixed or routine expenses during your disablement. This should give you enough time to recover, or find a suitable buyer if you can no longer keep your business going.
What does BOE cover?
Business Overhead Insurance plans cover the overhead expenses that you incur while running your business. It will reimburse most business expenses, and these often include:
- Employee benefits
- Business Insurance premiums
- Employee salaries (this does not include your own)
- Legal and Accounting Services
- Telephone and Utilities costs
- Vehicle expenses
- Mortgage, lease, or rent payments
- Mortgage or loan interest
- Lease payments on equipment
- Services like maintenance, laundry, and janitorial work
- Taxes (Employment and Property)
- Depreciation of equipment
- The salary for your professional replacement (this isn’t as common)
- Dues or subscriptions for professional trade associations
- Other assorted fixed expenses that might normally be incurred while running your business
What won’t it cover?
Some business expenses aren’t eligible to be reimbursed under the average policy. These can include:
- Your own salary
- The salaries of any family member that was hired after you became disabled
- The salary of any co-owner (your business partner) that holds the same type of occupation as you or has the same profession as you
The Benefits
Elimination period – The waiting period between when you become disabled and when your benefit payments actually start. This can be 30 days, 60 days, or 90 days, depending on what you chose when you bought the policy. Longer elimination periods have lower premiums.
Coverage Period – The maximum time that you will receive benefit payments for. This is normally for 12, 18, or 24 month periods. The coverage period begins right after the elimination period and will continue for the length of time you elected on your policy, or until your disability has ended (whichever takes less time).
Monthly Maximums – During your coverage period, your business is reimbursed each month for its actual overhead expenses, up to a maximum amount. This is your monthly benefit and is chosen when you buy your policy, and based on your average monthly expenses. You will be paid your actual expenses (if it is less than the maximum amount) or your maximum benefit amount (if your expenses exceed your monthly maximum).
Variation – Monthly payments will always vary due to the natural fluctuations of your businesses’ month to month expenses. There are some policies that will allow you to carry over any excess to the following month to help cover those months that are higher than your maximum benefit. Some may even pay an extra month or two until these accrued funds are depleted. Always check with your agent to get your monthly benefit details.
Taxes
It’s important to understand that even though you are the insured party, the business itself will own the policy and pay the insurance premium. These are deductible as a business expense and so any benefits that the company receives are and will be treated as taxable income. When the business uses these benefits to pay deductible operating expenses this taxable income is offset.
Buying BOE Insurance
When you speak to your advisor regarding Business Overhead Expense Insurance, they will explain the factors involved, and the process you will go through to get insured. Keep in mind that factors like health, age, criminal history, and your occupation are taken into consideration, as well as the amount of coverage you wish to purchase.
Personal Disability Insurance vs. Business Overhead Expense Insurance
When it comes to being a business owner, it’s not a decision
between these two types of insurance policies – you actually need to have both of them. Personal Disability insurance can replace
your income and pays the benefit to you directly. BOE reimburses your business expenses and so your
business will receive these benefits.
Personal Disability insurance plans can pay you up to the age of 65. When you buy a BOE, it will only cover costs for up to two years. After that, you have to use other options to cover your business expenses.
Remember that BOE payments are taxable income, but the premiums are tax deductible. Personal Disability premiums are paid with after-tax dollars and the benefits are tax free.
