Business owners can protect the operations of their industry by purchasing a business overhead expense (BOE) insurance policy. This insurance plan reimburses the insured for overhead expenses in the event they become disabled. Without this insurance policy, disabled business owners may not have any other option to save their company. People often ask, What Does A Business Overhead Expense Policy Cover? We explained everything you need to know in this post. Continue reading below.
Business Overhead Expense (referred to as BOE) insurance provides payments for the insured’s business overhead expenses if the business owner becomes disabled. The protection is for covered injuries and illnesses. This policy will keep the business running until such time as the business owner is able to return to work. It is available to sole proprietors and partnerships.
Benefits of Purchasing A Business Overhead Expense (BOE) Insurance Policy
A BOE policy pays for the everyday operations of a business if a primarily employee such as an owner becomes disabled. Premiums for BOE insurance policies can be written off as a business expense, however any benefit payments are considered taxable income. The payments are then used to pay business expenses that are tax deductible. Also business owners should consider the fact that three out of 10 workers will become disabled at some point during their working years, according to the Social Security Administration.
What Does A Business Overhead Expense Policy Cover?
BOE insurance plans cover overhead expenses, such as employee salaries, employment tax and benefit costs, rental payments on equipment and property, and the principal and interest on mortgaged business property. The policy can also cover the company’s utility payments, property taxes, legal and accounting fees, general office supplies and business insurance expenses.
The expenses that would be funded by Business Overhead Expense insurance policy are rent, utilities, payroll taxes, accounting fees, property taxes and insurance premiums for employees, loans, office supplies and equipment, and general maintenance services. Additional covered items include professional membership fees and professional subscriptions.
Excluded expenses can be some taxes such as payroll and property taxes. Other excluded items are inventory costs. It does not provide payments to replace the insured’s personal salary. That would be covered by a personal disability insurance policy.
What BOE Insurance Policies Won’t Cover
BOE insurance policies do not cover the salaries of business owners, employees brought in to replace the disabled insured, family members, partners or employees that do the same work are also not covered. For example, doctors in a practice cannot have their salaries paid for if another doctor becomes disabled. Also BOE plans do not pay out a flat rate for covered expenses as the costs can fluctuate month to month. Instead policies are paid out monthly up to the policy’s monthly coverage limit.
1: How long will BOE pay out? BOE insurance is designed to cover temporary disabilities. A policy will typically provide coverage for a period lasting between 12 and 24 months.
2: What is the elimination period? The elimination period is a waiting period that starts when the insured becomes insured and ends when the insurer begins payouts. BOE policies typically have elimination periods that are 30, 60 or 90 days long.
4: How much does BOE pay out? If the insured experiences a qualifying disability, BOE insurance will provide a monthly payout. This payout will cover all qualifying expenses up to the monthly maximum.
5: Are there any tax breaks? BOE premiums are a business expense. As such, they can be tax deductible.
6: How does BOE differ from disability insurance? Disability insurance and BOE insurance are similar, but they are not identical. Both provide coverage in case the insured experiences a disability. However, disability insurance provides payouts to replace the insured’s income and protect personal finances, while BOE insurance provides payouts to keep the business operational.
7: Should business owners have both BOE and disability insurance? Because disability insurance and BOE cover different expenses, it is important for business owners to maintain both types of coverage.