Updated January 6, 2022|5 min read
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Disability insurance pays a monthly benefit to you when you're disabled and can't work. But if you're a business owner, then you may also need funds to keep your business running while you're out of work. For that, you need business overhead expense insurance, also known as BOE insurance.
Expenses covered by business overhead insurance include important day-to-day costs like employee wages, loans, rent or a mortgage, and taxes. Notably, BOE doesn't cover your lost wages when you become disabled — you'll need your own disability insurance policy for that.
If you’re a business owner, overhead expense insurance can cover your operating costs when you have a disability.
Business overhead insurance won’t cover everything, including your own salary, so you’ll need to get an individual disability to protect your income.
When you use the insurance benefit payments toward eligible business expenses, you can deduct them from your taxes.
As a business owner, even just a few months away may cause your company serious financial harm. When you have BOE insurance, your benefits will cover your operating expenses so your business can continue to run smoothly while you recover.
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You'll qualify for business overhead expense benefits if you can't perform the material responsibilities of your job and are under a physician's care for your disability. If you don't meet the definition of disability, then your claim may be rejected. Speak with a licensed agent at Policygenius if you have more questions.
Insurers have different eligibility requirements, but typically to get BOE disability insurance, you have to:
Be between age 18 and 64 (or age 60 with some insurance companies)
Be in business for at least two years
Verify a minimum amount of revenue
Your policy may be renewable after you turn 65-years-old if you meet certain conditions, like continuing to work 30 hours a week.
When there are multiple owners of the business, the insurer may set a cap on how many there can be in order for you to be eligible for their overhead expense policy. You may not be able to take out BOE insurance if you work from home.
Business overhead expense insurance typically has a benefit period of 12, 18, or 24 months. Some insurers may offer a 15- or 30-month coverage period.
Benefit payments for business expense insurance end when you recover enough to return to work.
The elimination period for BOE insurance is 30, 60, or 90 days.
Selecting a longer elimination period means there's a higher chance you'll recover from an injury or illness before the insurer has to pay benefits. This can save you a lot of money on your premiums.
You can choose your maximum monthly benefit amount when you take out a business overhead expense policy. Sufficient BOE insurance coverage should pay 100% of your monthly operating expenses up to your maximum monthly benefit amount.
It's possible for unused benefit payment to roll over if your expenses are lower in a given month. For example, over a two-month coverage period, if your base monthly benefit is $10,000, but you only used $9,000 the first month, then your overhead expense insurance can pay up to $11,000 in expenses the next month. Some insurance companies will let you keep accumulated benefit payments by extending the coverage period.
Your BOE insurance is guaranteed renewable, meaning that, as long as you keep paying the premiums, the insurer can't cancel or modify the terms of your policy. Some insurance companies allow you to renew your policy after age 65, but that's determined on a case-by-case basis.
Your policy could also have residual disability benefits, which is coverage when you're not totally disabled. You'll receive partial benefit payments if you become disabled but can still perform your job.
Business overhead expense insurance can also pay to help you recover and rehabilitate. This is called recovery benefits. But if you suffer a disability from which it's immediately evident that you won't recover — such as losing limbs, going blind or deaf, or losing your ability to speak — then you could qualify for your BOE coverage's presumptive disability benefits.
You may be able to convert your business overhead insurance to an income protection disability insurance policy for yourself. You might do this if you decide to become an employee somewhere else, or if you're more concerned about living without an income than paying business expenses in the event of a disability.
Business overhead expense insurance covers a range of "usual and customary" business expenses. These include the following:
Wages: This includes payroll, payroll taxes, and contributions towards benefits. Your insurance may also partially pay the salary of a substitute employee that takes over your responsibilities. A rider can be added to increase your substitute's pay.
Office expenses: This includes utilities as well as equipment. Your BOE policy should also include coverage for custodial services and even laundry.
Dues and fees: This covers licensing fees as well as professional and trade dues.
Debts: Debt coverage includes accounting, billing, and collection services, as well as installment payments on your own business debts.
Real estate: Covered expenses include your office's rent, mortgage, and property taxes.
Insurance premiums: Your property and liability premiums, as well as any employee life insurance or disability insurance premiums, are covered.
While BOE insurance covers many types of costs you'd be on the hook for when running the company, some expenses are not covered. These include:
Your own wages and profit, nor those of people who pay a share of your business expenses
The wages and profit of any of your relatives, unless they were employed by your company 60 days or more before your disability
Costs that are covered by another source, including those passed on to customers
Additions to the office space, including furniture and renovations, paid for after your disability
If you need coverage for your own wages while you're disabled, you need to have an individual disability insurance policy.
Talk to one of our licensed representatives at Policygenius who can set you up with a policy to protect your income (long-term disability insurance) and a policy to protect your business (business expense insurance)
Note that both types of policies won't cover you if your disability was caused by some circumstances, such as fighting in a war, committing a crime, or self-inflicted harm.
As with other covered business expenses, your insurance premiums are generally tax-deductible. However, your overhead insurance benefits may be taxable as business income.
But business expenses you pay for with your insurance benefits may be tax-deductible, just like other eligible expenses you pay for with your revenue. Talk to a tax professional to make sure.
The opposite is true for income protection disability insurance, where your benefits are generally not taxed if you paid your premiums with your after-tax, or net, income. A long-term disability policy can benefit most people, since the benefits you receive can help fill in the gaps if you’re ill or unable to work.
Employee salaries, payroll taxes, rent and mortgage payments, utility bills, accounting fees, and office expenses are common costs covered by BOE insurance.
Your own wages and profits, or your relatives’ wages and profits if they’ve worked for you less than 60 days since your disability.
Premiums are deductible, but benefit payments you receive may have income-tax consequences. Eligible expenses paid for with the benefits can be deducted as usual.
You must wait 90 days after becoming disabled to receive benefit payments. Choosing a lower elimination period usually means you’ll pay a lower premium.