The ability to continue business operations while the business is disabled can be reassuring to your customers, creditors and employees. Without BOE insurance, you might find yourself using personal funds or taking on debt to meet business expenses.
You might even be forced to close the business. With this coverage, you will be able to keep your business afloat, at least for a period of time. And if you decide to sell your business after becoming disabled, the benefits paid under such a policy can keep your business operating and give you some breathing space to find a suitable buyer.
Business overhead expense (BOE) disability insurance also known as Business Expense Insurance, pays the insured’s business overhead expenses if he or she becomes disabled. A BOE policy pays a monthly benefit based on actual expenses, not anticipated profits. It is designed for businesses that rely on a small number of people (or one person) to produce a revenue.
The owner is reimbursed for existing overhead expenses incurred while he/she is disabled, keeping the company up and running while the owner recovers.
The following business overheads are typically covered by a BOE disability policy:
Interest payments on some business debts
Employee’s salaries and payroll taxes.
Postage and stationery
Rentals, leases, or depreciation of office equipment
Taxes on the business property
Insurance premiums for Workers’ Compensation, employee medical and liability
Professional membership and subscriptions
Policies do not typically cover the salary of a temporary employee hired to do the duties of the disabled, unless a substitute salary expense or similar rider is purchased with the policy. Income taxes and the cost of inventory are some expenses that are not covered.
Elimination period: BOE policies typically have short elimination periods; either 30, 60 or 90 days.
Maximum benefits: BOE insurance policies offer a maximum monthly benefit, but only reimburses the policyholder for actual overhead expenses incurred if they, are less than or equal to the maximum benefit. With some insurers, any unused benefit can be applied to increase future monthly maximums or to extend the benefit period.
Taxation: BOE insurance benefits are reportable as income and the premiums are tax deductible as a business expense.
Rates: BOE insurance rates are based on the insured’s age (at time of purchase), occupational duties, health status, optional riders selected, benefit period and elimination period.
Once BOE insurance is owned, coverage cannot be increased without providing evidence of medical insurability, unless a future increase option or similar rider is purchased at the time of policy issue.
You may apply for coverage if you are between ages 18 and 60.
The plan is non-cancelable until you reach the age of 65. After age 65, it is conditionally renewable, as long as you remain employed full-time (minimum of 30 hours per week) and are responsible for the expenses of maintaining an office or business.
Benefits can be paid over a period of time of either 15 or 24 months.
Benefits may start after as few as 15 days of disability.
Premiums may be tax deductible as a business expense.
Various options are available, including the ability to increase your coverage at a later date.
If appropriate, return to work assistance may be provided to support your transition back to work.
THE COST OF BOE INSURANCE
Cost of the insurance will be based on several variables, including your age, sex (women pay higher rates because statistically, they live longer but are more prone to become disabled). The risk category of your profession, your medical background, whether you smoke, and, of course, the coverage you need. Obviously, you will pay more for a policy that pays $15, 000 a month for two years than a policy that pays $5, 000 for six months. Your payments will rise as you age. The policy that is dirt cheap in your 30s could cost you a fortune in your 60s.