Business Overhead Expense Insurance is a policy designed to help small business owners when illness or disability requires them to be absent temporarily. This policy is different from personal disability insurance, which helps cover lost income if you can’t work. But if you own a business, BOE insurance keeps it running while you are not at work. It covers expenses like employees’ wages, maintenance costs, taxes, rent, loans, and more.
For instance, if you get into a car accident and get seriously injured or are diagnosed with a bad illness, it kicks in to provide your business with enough cash flow while you recover. Overhead expense insurance is used to help manage your business’s daily expenses. Its main purpose is to make sure that the business can continue when you are not available. Just so you know, business overhead expense insurance typically offers benefits for 12, 18, or 24 months. However, there is usually a waiting period of 30 to 90 days before the payments begin.
What Does it Cover?
This kind of policy is designed mainly for your business. Below are the different expenses you can use it to pay:
- Rent payments
- Utility bills
- Tax obligations
- Custodial services
- Business credit card bills
- Insurance premiums
- Business credit card bills
- Employees’s salaries or wages
However, you need to know that overhead expense insurance doesn’t cover costs for business improvements or expansion, like purchasing new equipment or opening another location. It also doesn’t cover your salary; for that, you would need a disability insurance policy that provides a portion of your usual earnings to help with personal expenses like mortgages, utilities, medical bills, and debts while you’re unable to work. Plus, it does cover the salaries of people you hire after you become injured or sick.
Who needs Business Overhead Expense Insurance?
If you are primarily responsible for managing your business, it’s a good idea to consider overhead expense insurance. This coverage ensures that your business bills are paid if you face a disability or illness that takes you out of work. Your policy might provide benefits for up to two years after an eligible claim, which can be beneficial if you need extended rehabilitation or therapy.
However, not all business owners qualify for this insurance. For instance, freelancers who work from home may not be eligible for this type of policy and might need to rely on a personal disability insurance policy instead.
BOE Insurance Pros and Cons
There are various advantages and disadvantages associated with this type of insurance. Below are some of the key benefits and drawbacks of BOE:
Pros:
- Premiums may be tax-deductible.
- Being able to meet your payroll
- Your policy won’t be canceled as long as premiums are paid.
- It helps to decrease the amount of money you dip into your savings to cover the business.
- It allows you to preserve your business’s cash reserves.
Cons;
- The benefits you receive might be considered taxable income for the business.
- You may need separate disability coverage for personal benefits.
- Benefits have a time limit and can’t be indefinitely paid.
While the benefits typically outweigh the drawbacks, it’s important to weigh both sides and think about the potential value of buying this type of coverage. This insurance can offer protection if you fall ill or become disabled. But if you never need to use it, you might feel like the premiums were wasted.
Who qualifies for BOE insurance?
Different insurance companies may have varying eligibility rules, but in general, to qualify for business overhead expense insurance, you typically need to:
- Be between the ages of 18 and 64.
- Have you been operating your business for at least two years?
- Meet a minimum revenue threshold.
Your business overhead expense insurance might also set restrictions on the number of owners in your business for you to qualify for coverage. Additionally, you may not be eligible for this insurance if your business is based at home.
How to Get Business Overhead Expense Insurance
Several companies provide this type of insurance coverage. Before you apply, review your business finances to determine how much coverage you need based on your expenses and overhead. Assess how much revenue you generate directly through your role in the business.
From there, compare options from different insurers to find the right coverage for your needs. Be aware of potential eligibility requirements such as age, business structure, industry, and minimum revenue levels.
Once approved for a policy, you may be able to customize your coverage with your insurer. For instance, you could add riders to cover wages for someone who takes over your role during your disability or to increase your benefit amount over time.
When comparing policies, pay attention to coverage amounts, premiums, and the cost of adding riders. Your goal should be to secure the right level of coverage at an affordable price that fits your business budget.