Getting injured or incurring a serious illness as a business owner can put a severe damper on your earnings plans. If you are strapped with the responsibility to pay off recurring overhead, taxes, rent and other expenses, one incident can potentially turn your business from profitable to bankrupt.
This situation is exactly why business overhead expense (BOE) insurance was created. Learn more about how BOE insurance policies help business owners deal with disability, what situations it can apply to and its typical limitations by reading on.
What is Business Overhead Expense Insurance?
Business Overhead Expense (BOE) insurance covers the operational expenses of a business when the owner is temporarily or permanently disabled due to illness or injury. It differs from personal disability insurance, which replaces the owner’s income, by focusing on the business’s financial obligations.
What Does BOE Insurance Do?
BOE insurance provides financial support to cover essential business expenses, ensuring the business continues to operate during the owner’s absence. It covers costs like rent, utilities, employee salaries (excluding the owner’s), insurance premiums, and loan payments, helping prevent financial distress and maintaining the business’s stability.
How BOE Insurance Maintains Business Operations:
- Maintains Cash Flow: Covers fixed operational costs, ensuring business solvency.
- Protects Employees: Covers payroll, ensuring uninterrupted employee payments.
- Preserves Business Assets: Maintains leases and key relationships by paying necessary bills.
- Provides Peace of Mind: Allows the owner to focus on recovery without financial stress impacting the business.
Why Do You Need Business Overhead Expense Insurance?
Without Business Overhead Expense (BOE) insurance, business owners risk severe financial instability if they become temporarily or permanently disabled. Essential expenses like rent, utilities, payroll, and loan payments still need to be met even if the owner is unable to work. Without coverage, these ongoing costs can quickly deplete business reserves and personal savings, potentially leading to insolvency or the need to shut down operations.
Examples of Scenarios Where BOE Insurance is Crucial:
1. Small Businesses:
- Example: A sole proprietor running a small retail store.
- Scenario: The owner suffers a severe injury and is unable to work for several months. Without BOE insurance, they would struggle to cover rent, utility bills, and employee wages, risking the closure of the business.
2. Professional Services:
- Example: A dentist running a private practice.
- Scenario: The dentist is diagnosed with a serious illness and cannot practice for an extended period. BOE insurance would cover expenses like office rent, staff salaries, and equipment maintenance, ensuring the practice can continue operating until the dentist returns.
3. Consulting Firms:
- Example: An independent consultant with a few employees.
- Scenario: The consultant is incapacitated due to an accident. BOE insurance would pay for office rent, utilities, and employee salaries, allowing the business to maintain its commitments and client relationships during the consultant’s recovery period.
What Does Business Overhead Expense Insurance Cover?
Business Overhead Expense (BOE) insurance is designed to cover the essential operating expenses of a business when the owner is temporarily or permanently disabled. Here’s a detailed list of typical expenses that BOE insurance covers:
- Rent or Mortgage Payments: Covers the cost of renting or financing the business property.
- Utilities: Includes bills for internet, water, electricity, gas, and other essential services.
- Business Insurance Premiums: Pays for various business-related insurance policies.
- Employee Salaries: Covers the wages of employees, excluding the owner’s salary.
- Loan Payments: Includes both principal and interest payments on business-related loans.
- Taxes: Covers real estate and payroll taxes necessary for the business operation.
- Maintenance and Repair Costs: Pays for ongoing maintenance and necessary repairs for equipment and facilities.
- Professional Fees and Dues: Covers costs for professional services such as legal and accounting fees, as well as memberships and dues for trade associations.
What Are the Limitations of Business Overhead Expense Insurance?
Business Overhead Expense (BOE) insurance is essential for maintaining business operations during an owner’s disability, but it’s important to understand its limitations. Here are the common exclusions and limitations:
Common Exclusions:
- The Owner’s Salary: BOE insurance does not cover the owner’s personal income. For this, personal disability insurance is needed.
- Business Partners’ Salaries: If the business has multiple owners or partners, BOE insurance typically does not cover their salaries.
- Costs of Inventory or Business Expansion: Expenses related to purchasing inventory or expanding the business are not covered under BOE insurance. The focus is on maintaining current operations, not growth.
Duration of Coverage:
- BOE insurance policies usually provide coverage for a limited period, typically up to two years. This duration helps businesses stay afloat during the owner’s recovery period but is not intended for long-term support.
Waiting Periods:
- There is often a waiting period before the benefits of a BOE insurance policy begin. This exclusion period can be 30, 60, or 90 days, depending on the policy. During this time, the business must cover its expenses without the help of insurance benefits.
Tax Implications of Business Overhead Expense Insurance
Tax Deductibility of Premiums
Premiums paid for Business Overhead Expense (BOE) insurance are fully tax-deductible as business expenses. This means that the amount you spend on these premiums can be deducted from your business’s taxable income, effectively reducing your overall tax liability.
Taxable Benefits
While the premiums are deductible, any benefits received from a BOE insurance policy are considered taxable income for the business. This means that when your business receives insurance payouts to cover operating expenses during the owner’s disability, these amounts must be reported as income and are subject to standard business tax rates.
Consulting a Tax Professional
Given the complexities of tax laws and the potential impact on your business’s financial planning, it is highly advisable to consult with a tax professional. They can provide personalized advice and ensure that you fully understand how BOE insurance fits into your overall tax strategy, helping you make the most of your deductions and manage your taxable income effectively.
Ready to Look Into Business Overhead Expense Coverage for Your Company Today?
Explore your options and find the perfect policy and coverage packages tailored to your business’s unique needs by talking to a commercial insurance agent at Harris Insurance. Our experienced agents can help you navigate the complexities of BOE insurance, ensuring you get the coverage that best supports your business’s continuity and success.
Contact Harris Insurance today to get started on securing your business’s future with comprehensive Business Overhead Expense insurance coverage. Let us help you protect what you’ve worked so hard to build.