Protecting Your Financial Wellbeing

For business owners, ensuring that your business is financially protected can be overwhelming. Business owners face a unique set of challenges when it comes to managing risk. Insurance can play an important role in reducing the financial impact on your business in the case of uncontrollable events, such as disability.

Disability: Most people spend money on protecting their home and car, but many overlook protecting their greatest asset: their ability to earn income. Unfortunately, one in three people on average will be disabled for 90 days or more at least once before the age of 65.

Business Overhead Expense (BOE) insurance can provide monthly reimbursement of expenses during total disability, such as rent for commercial space, utilities, employee salaries and benefits, equipment leasing costs, accounting fees, insurance premiums for property and liability, etc. This disability insurance policy specifically addresses ongoing operational costs, ensuring that the business can continue functioning smoothly despite the temporary absence of its key personnel due to health issues or other incapacitating conditions.

Who It Should Be For?

BOE Insurance is particularly essential for small business owners, including solo practitioners such as lawyers, accountants, physicians, or engineers, who are integral to the success and operation of their businesses. It is suited for individuals whose absence would significantly disrupt business operations. Business owners can apply for this insurance between the ages of 18 and 60, making it a versatile option for those at various stages of their professional journey.

Why It Is Important

The purpose of BOE Insurance lies in its ability to cover fixed expenses during an owner’s unplanned absence. This includes rent, employee salaries, utilities, and loan payments—expenses that persist regardless of the owner’s ability to work. By maintaining these payments, the insurance helps preserve the business’s financial health and operational stability. Furthermore, if eligible, the premiums paid towards BOE Insurance are considered a tax-deductible business expense, which can provide additional financial relief.

What’s Covered

BOE Insurance typically covers fixed business overhead expenses such as rent or mortgage payments, utilities, non-owner employee salaries, property taxes, professional fees (like accounting), and principal and interest on business debts. The coverage can also extend to the salary of a temporary employee hired due to the owner’s disability. When setting the maximum monthly benefit, business owners should total all covered expenses. It’s essential to periodically reassess the coverage amount as the business grows and as inflation impacts business operations, adjusting it as necessary.

What’s Not Covered

BOE policies do not cover inventory costs or the personal salary of the insured owner. While some taxes like payroll and property taxes are included, income taxes are generally excluded. This is why many business owners also purchase personal disability insurance to complement their BOE policy and protect their personal income.

Exclusions and Benefit Duration

Most BOE policies exclude coverage for conditions related to pre-existing illnesses or disabilities that were known to the policyholder before obtaining the policy. Benefits are generally disbursed for a duration of 15 to 24 months, offering a significant period for business owners to recover and resume their professional roles without needing to rush their recovery.

An Example

Consider the case of Sarah, a lawyer who runs her own practice. Her business heavily relies on her presence, from client consultations to courtroom appearances. Unfortunately, Sarah suffers a serious illness that sidelines her for several months. With Business Overhead Expense (BOE) Insurance, her office’s rent, her assistant’s salary, and the monthly payments on her business loans are all covered, ensuring her practice can maintain operational continuity. However, to address her personal financial needs during her recovery, Sarah also wisely invested in personal disability insurance. This policy covers about 60% of her income, helping her manage her mortgage and other personal expenses. Together, both policies act as a comprehensive financial safety net, enabling her to focus on recovery without worrying about either her personal finances or her business’s viability. This strategic approach illustrates how combining BOE Insurance with personal disability insurance can provide thorough coverage, safeguarding both personal and professional aspects of a business owner’s life during health challenges.

By understanding the purpose and benefits of BOE Insurance, small business owners can take proactive steps to protect their business against the unexpected.

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