​​From 360financialliteracy.org - The American Institute of Certified Public Accountants​


Business overhead expense insurance is a type of insurance that is designed to protect your business if you or your partner(s) become disabled. Specifically, it provides monthly payments to your business for a specified period of time so that your business can meet its expenses and remain open while you're disabled. Keep in mind that business overhead expense insurance doesn't replace the personal disability insurance which covers your income--it supplements your personal coverage. Your personal disability policy pays benefits to you. Your business owns and receives the benefits under the business overhead expense policy.

Why should you consider it?
The ability to continue business operations while you're disabled can be reassuring to your customers, creditor, and especially your employees. Without business overhead expense coverage, you might find yourself using personal funds or taking on debt to meet business expenses. You might even be forced to close the business. With this coverage, you'll be able to keep your business afloat, at least for a period of time. And if you decide to sell your business after becoming disabled, the benefits paid can keep your business operating and give you some breathing room to find a suitable buyer.

​What's covered?
Business expenses eligible for reimbursement usually include:

  • Employee salaries
  • Employee benefits
  • Salary for a professional to replace your position
  • Lease, rent, or mortgage payments
  • Insurance premiums
  • ​Utilities and telephone
  • Professional trade dues and subscriptions
  • Laundry, janitorial, and maintenance services
  • Accounting and legal services
  • Automobile expenses
  • Equipment lease payments
  • Equipment depreciation
  • Loan and mortgage interest
  • Taxes
  • Other fixed expenses normally incurred in running the business


Certain expenses are not eligible for reimbursement:

  • Salary of disabled owner
  • Salaries of family members hired after the onset of your disability
  • Salaries of any other co-owners


Benefit period is subject to time limits
There are two important time periods to keep in mind: the elimination period and the coverage period. The elimination period is a waiting period between the start of your disability and the start of benefit payment. The elimination period is 30, 60, or 90 days. The coverage period is the maximum length of time that benefit payments will be made, which is 12, 18, or 24 months. Benefit payments begin after the elimination period and continue for the length of your disability or the coverage period, whichever is less. You choose both the elimination period and the coverage period when you buy the policy. The longer elimination periods have a lower premium.

Benefits Paid
During the coverage period, the policy will reimburse your business each month for its expenses up the amount purchased. When you buy the policy, you select the monthly benefit based on your business's normal monthly expenses. Generally, the actual monthly payment is equal to the amount of your business's actual expenses, so the actual amount paid each month can also vary. Benefits will be paid past the end of the contracted coverage period, or increased in a given month, if any monthly maximums were not reached.​

​Tax issues
Even though you're the insured party under the policy, the business owns the policy and pays the premium. The premium payments that the business makes are deductible as a business expense. As a result, any benefits that the company receives under the policy are treated as taxable income. However, this taxable income is offset when the business uses the benefit payments to pay deductible business (operating) expenses.

Underwriting
Premiums will be based on your age, health, type of business, and the amount of coverage you want to buy. You (and each partner purchasing coverage) will go through both medical and business financial underwriting to determine eligibility.



​From 360financialliteracy.org - The American Institute of Certified Public Accountants

Business Overhead Expense Insurance