Insurance isn’t always the most exciting topic for discussion. In fact, it usually means we are bringing up the things nobody wants to think about. However, having the proper coverage is an essential risk management strategy for you and your business. Recently, I talked about the importance of having personal disability insurance, but what about protecting your business in the event of a life-changing catastrophe? That is where business overhead disability insurance is an invaluable piece of protection.
In its most basic sense, business overhead disability insurance or business overhead expense (BOE) disability insurance, as it is often called, is a safety net that covers the expenses of your business while you are absent with a disability. Not long ago, I spoke with a dentist. He owns a practice and has a team that depends on him. The team also rely on his abilities for their livelihoods. Nevertheless, he was in a car accident and suddenly became unable to work for a full year. The accident had severed a tendon required to hold a particular instrument used to perform several types of dentistry procedures. The driver that hit him didn’t have any form of umbrella insurance, leaving some of the peripheral expenses uncovered.
While he recovered, he continued to work but in a limited capacity. Without being able to perform all procedures, his income suffered. BOE disability insurance kicked in, providing a benefit that secured the financial safety of his business and the staff that depended on him.
Typically, business overhead policies will cover you for periods of twelve, eighteen, or twenty-four months. The policy covers you while you get well. It could also allow you enough time to transfer your business to a potential buyer should you become permanently disabled. Primarily, it protects what is potentially the most significant single asset on your net worth statement – your business.
Once the benefit kicks in, it will cover all of your standard expenses. This includes wages for your team. Your monthly expenses, such as utilities, equipment, and janitorial services, are eligible to be covered. Professional fees, licensing fees, rent/mortgage, insurance premiums – all of these qualify for coverage. There are even certain instances where your taxes on business income can be paid with this disability coverage.
Although business overhead disability provides protection for many of the things affected by a loss of revenue from personal disability, there are a few limitations. The policy will not cover your own wages. That is why it is so essential to carry your own personal lines of disability insurance. Similarly, business overhead policies do not pay the wages of business partners. The income of relatives will not be paid unless they were employed by your company at least sixty days before you become disabled. Further, these policies do not cover any additions or renovations to your business. The insurance company is not going to allow you to grow your business on their dime.
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Most insurers offer plans in $10,000 increments. Often, policies carry a maximum benefit of $40,000 per month. If you need more coverage, it is available with additional underwriting. When you select a plan that is right for you, pay for it out of your business finances. Doing so will make the cost of your coverage tax-deductible.
The cost of business overhead policies varies, and though it isn’t cheap, it isn’t prohibitive either. You should discuss the options that are available with your insurance agent to decide which policy is right for you. With the right plan, you will be prepared for any of life’s unexpected changes.