How long would your business survive if you were temporarily disabled? How would you pay the salaries of your employees and meet your monthly expense obligations? According to statistics, approximately 50% of persons aged 35 will suffer a disability lasting at least 90 days before they attain the age of 65.
In the event the owner of a business suffers a disability, their inability to work and generate an income will prevent them from paying the regular monthly bills of maintaining their office. Business Overhead Expense Insurance pays a monthly benefit that is based on the actual monthly overhead expenses of the business and is not based on any anticipated profits.
When a disability occurs, there are three things that will happen to a business owner:
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1 |
Their regular living expenses will continue to occur. |
2 |
Their business expenses will continue to occur. |
3 |
The income earned from their business will be severely interrupted. |
Business Overhead Expense Insurance will allow the office to continue to function during a period of temporary or permanent disability by covering the following costs:
- Rent
- Interest payments for business loans
- Utilities
- Employee salaries
- Equipment rentals and maintenance
- Postage and stationary
- Insurance premiums for employee medical plans
- Professional memberships and subscriptions
- Etc.
These plans can be customized as per the required business needs and will prevent the disruption to the business in the event the owner of the business is unable to pay for the above business overhead expenses.
Differences between Personal Disability Insurance and Business Overhead Expense Insurance
Personal disability insurance protects a physician's ability to earn income, but what protects his or her medical practice? Business overhead expenses are just as relentless for those who suffer a disability.
There are two main ways in which Business Overhead Expense (BOE) Insurance differs from Personal Disability Insurance.
Firstly, the Benefit Periods, meaning how long the monthly benefits will be paid for, are completely different. BOE Insurance has a much shorter benefit period that will not exceed two years. BOE insurance’s primary goal is not to protect your income; that is what Personal Disability Insurance is for. BOE Insurance allows you to keep your business open and, in the case of a long-term disability, gives you two years to make a decision as to whether you would like to sell the business or liquidate it.
The other main difference between BOE Insurance and Personal Disability Insurance is the Maximum Benefits. Personal Disability Insurance pays a maximum benefit as outlined in the insurance policy, whereas the BOE Insurance benefit will be paid based on what the actual business overhead expenses are if they are less than the maximum benefit. For instance, if the specified benefit on the policy is $1,000 but the monthly expenses are only $600, the insurance company will pay $600. The remaining $400 benefit can be used to either increase the overall benefit period or to increase future monthly maximums.
There is, however, one similarity between personal disability and business overhead expense insurance, and that is that the earlier you purchase the insurance, the better. Your rates of insurance will be much lower because you will be in better health and of a younger age, and you will also have the option to purchase additional coverage in the future without having to provide any further evidence of medical insurability.
The premiums for overhead expense insurance are deductible by the insured as a business expense similar to property and liability coverage. While the benefits from overhead expense insurance are taxable income to the insured, the benefit payments are used to pay regular business expenses that are generally deductible; such that no net tax liability exists.
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