A normal disability insurance policy pays out when you’re injured or sick and can’t work. But if you own a business, you need business overhead expense insurance, or BOE insurance, to keep your business running while you’re out of work.
Your personal disability insurance covers your own salary, but business overhead expense insurance is different. It covers business expenses like paying your employee’s wages, loans, rent, maintenance costs, taxes, and more.
How does business overhead expense insurance work?
Business overhead expense insurance is a type of disability insurance policy that covers your business’s routine expenses (not your own salary) while you’re out of work because of an injury or illness.
You may need business overhead expense insurance if you run a small to medium-size business and your absence would hurt the business financially. If your business can run normally without you, you might not need a policy.
Usually you can receive benefits (meaning payments) from business overhead expense insurance for either 12, 18, or 24 months. Your coverage will come with a waiting period of between 30 to 90 days before the payments can start.
How much does business overhead insurance pay?
Your monthly benefit payment from business overhead insurance depends on your business’s monthly expenses and not your income.
Your benefits are capped, so you can’t receive more than what you signed up for when you first got the policy, but you might be able to roll over your benefits if you don’t hit your maximum in a given month.
For example, if your monthly payment is $10,000, but you only use $9,000 in July, then you have up to $11,000 to use to cover expenses in August.
Business overhead expense insurance and taxes
Your business overhead expense premiums are a business expense and are, therefore, tax-deductible.
But if you actually have to use your business overhead expense insurance someday, your payments can be taxed as business income. You should talk to a tax professional to really understand the expectations.
What does business overhead expense insurance cover?
Business overhead expense insurance covers basically anything you need to pay for as a small business owner (excluding your own salary). That includes:
Debt: Includes expenses related to accounting, billing, and collection services, as well as installment payments on your business debts.
Dues and fees: Covers licensing fees as well as professional and trade dues.
Insurance premiums: Your property and liability premiums, as well as any employee life insurance or disability insurance premiums, are covered.
Office-related expenses: Your payments can cover the expenses that keep your office running, like your utilities, equipment, maintenance, laundry, and more.
Real estate: Covers expenses like your office's rent, mortgage, and property taxes.
Wages: Includes payroll, payroll taxes, and your contributions for your employees’ benefits.
Your replacement: Some policies pay for you to hire someone to replace you while you can’t work.
What doesn’t business overhead expense insurance cover?
While business overhead expense insurance can be really useful for small business owners, there are a few things it won’t cover.
Any of your business partners’ salaries
Salaries for anyone hired after you become sick or injured
Your business’s profits
Costs that are covered by another source (like inventory costs, which ordinarily businesses pass onto customers)
Changes to the office space after you
A private disability insurance policy, not business overhead expense insurance, will cover your wages when you’re disabled. You can work with one of your representatives to compare quotes and protect your income and business.
Who qualifies for business overhead expense insurance?
Insurance companies all have slightly different eligibility requirements, but usually to get business overhead expense insurance you have to:
Be between 18 and 64 years old
Have been in business for at least two years
Meet a minimum amount of revenue
Your business overhead expense insurance policy may also limit the number of owners your business can have in order for you to be eligible for coverage. You may also not be able to get business overhead expense insurance if you work from home.
Types of business overhead expense insurance features
Riders are coverage add-ons and modifications that change or enhance your policy. Here are some of the common rider options you’ll see with business overhead insurance:
Conversion option Converts your policy to personal disability insurance after you have coverage for at least two years.
Guaranteed renewable coverage: As long as you keep paying your premiums, your insurance company can’t cancel or modify your policy.
Future purchase rider: Allows you to purchase more benefits as your business grows without your having to go through a health exam.
Residual disability benefits: Pays you partial benefits when you’re not fully disabled, but you can’t totally perform your job.
Presumptive disability benefits: Pays a full benefit right away after a serious injury, like when you lose your hearing, speech, sight, or two or more limbs.
Renewable after 65: Your policy may be renewable once you’re older if you meet certain conditions, like continuing to work 30 hours a week.
Salary replacement: Pays for someone else to do your job while you’re out of work.
Survivor benefit: Pays benefits to a beneficiary if you die.
How to get business overhead expense insurance
Getting business overhead expense insurance is a lot like getting a regular disability insurance policy.