Business Overhead Expense
As a Business Owner, a long-term disability could have an extreme financial impact on your company. Business Overhead Expense covers operating expenses until you are back at work. Essentially, it’s a Disability Policy for your Business. With a 1 in 3 chance of a Disability, Business Overhead Expense is a necessity when a company has recurring financial obligations.
Business Overhead Expense – What is Covered?
In short, it covers normal day-to-day operating expenses. Including:
- Bills (Lease, Utilities, Insurance, etc.)
- Employee Salaries
- Professional Fees for Advisors
- Professional Licensing & Fees
- Software Licensing & other Subscriptions
- Business-related Taxes
- Salary for a qualified temp to cover your duties
- Even Professional Fees related to your exit from the business if needed
What it does not cover is your own salary as a business owner. You are expected to have an Individual Disability Policy to cover your own income. The other limitation is that Business Overhead Expense usually only provides benefits for a period of 1-3 years. After this time, it’s assumed the business would be sold or wound down if you were still not able to operate it.
Business Overhead Expense – Important Features
There are certain features to look for in a Business Overhead Expense Policy. The main thing is to make sure it uses the “Own-Occupation” Definition for being Disabled. Not “Any-Occupation”. Own-Occupation considers if you can perform your specific occupation. As the name implies, Any-Occupation considers if you can perform ANY occupation at all… which is much less beneficial to have.
Most policies cover the same basic benefits. But some do not offer things such as a Salary for a Temp, or Professional Fees in the event of a buy-out. So make sure you choose a carrier that offers comprehensive coverage.
Also, make sure you have adequate coverage. Some carriers have higher coverage limits than others. Sometimes layering a “base policy” with a “high limit policy” is required to protect high overhead businesses. This “high limit policy” usually is provided by Lloyds of London.
How are Benefits Paid?
When applying, you choose between an option of Monthly Benefits or a Lump-Sum Benefit. The “right choice” depends on your situation. The Lump-Sum Option will not be as much as the total payments from the Monthly Option… but you get it all at once which has its obvious benefits.
Another consideration is the method payments are received with the Monthly Option. To receive benefit payments, proof of the bills must be submitted to the insurance carrier. Regularly recurring bills do not need to be re-submitted each month unless there is a major change in the amount. But this is a big difference in the two options. The Lump-Sum Option makes things more simple, clean cut, plus you get a guaranteed amount no matter what.
The Best Business Overhead Expense Policy
Many insurance carriers offer Business Overhead Expense. But only a handful truly specialize in it and offer comprehensive coverage. The “best” Business Overhead Expense policy largely depends on your specific Occupation and Health conditions. But the top carriers include:
- Guardian Life
- Lloyds of London
- The Standard
- Assurity Life
- Mass Mutual
- Ohio National
Business Overhead Expense – The Application Process
First, it is important to work with an Advisor who is a specialist in BOE Insurance. They should shop the market to provide you with the carrier best suited to your occupation, job duties, and health.
The actual application is similar to a normal Disability Insurance Policy. They ask health and financial questions, usually give a brief medical exam, review health records, etc. They also require some extra info related to your business. Usually, this includes a business license, financial info, and things of that nature.
It usually takes about 2-4 weeks for the policy to be finalized. If your expenses increase in the future, most policies allow you to request an increase in coverage.
That covers the basics of Business Overhead Expense. Hopefully, you found the article helpful. If you have any questions or need a quote, feel free to contact me. I am happy to help no matter which state you are in.
Thanks for reading,