What type of business disability insurance product reimburses a business owner for certain expenses incurred during a period of disability?

Ask us how business overhead expense insurance can help protect your business.

A disability policy owned by your company can provide a monthly payment. It can help keep your business running smoothly and cover expenses if an illness or injury keeps you from working.

While a disability can often be visible to the naked eye, not all disabilities are so easily recognized. Chronic pain or a mental health issue can also qualify as a disability. 

Business overhead expense

Protect key people

Fund a buy/sell agreement

When does it provide benefits?

Who is it best for?

How long does the coverage last?

What are the benefits?

If you become totally disabled	If a key employee becomes disabled	If you or your partner become disabled
Any business owners with monthly expenses	If you or another person drives the business	Owners of privately-held businesses
Monthly payments for 1 or 2 years Payments stop once you’re able to work	Monthly payments for 1 year Payments stop once you’re able to work	Single lump sum payment Must satisfy waiting period of 1 or 2 years
Focus on recovery Retain valued staff  Pay ongoing expenses Avoid disruptions to your business	Provide a source of income for a key employee while they’re disabled. Protect the business from lost sales, increased expenses or high replacement costs when a key employee is totally disabled.	Provide funds to purchase the shares or ownership interest of a totally disabled shareholder or partner Fixed expense protection   Reassure suppliers and creditors Fund a disability buy/sell agreement  Helps reduce potential resentment among shareholders or partners

Depending on your situation you may need only critical illness and disability insurance but there are many times when you need both to fully protect yourself. 

Critical illness and disability insurance work together to help reduce the impact of disability or serious illness. 

Critical illness insurance Disability insurance

Payment type?

When do you receive the payment?

How long does your coverage last?

Ideal for?

Tax-free, one-time payout	Monthly income replacement
If you’re diagnosed with a covered condition	If you can’t work because of injury or illness
No waiting period in certain cases	Usually will have to wait
Coverage for life	Ends at age 65
A large sum that you can do what you want like paying medical expenses, mortgage and pay off debt	Covering monthly expenses

To prove eligibility for disability insurance, the policyholder needs to meet the policy’s definition of disability. Two common definitions are own occupation and any occupation:

Own occupation means if you can’t perform the duties of your regular job, you’ll be considered totally disabled and eligible for benefits. This doesn’t mean you have to be bedridden, just that you can’t perform your regular duties.

Any occupation means if you can’t perform the duties of any reasonable job that would typically be suitable for you, you’ll be eligible for benefits. If you are able to work part-time in your normal job or in some other comparable field, you won’t qualify for your full disability benefits. However, you still might be able to receive a partial benefit.

Once you’re eligible, you still need to fulfill an elimination period (or waiting period) before receiving your first disability income check. The longer the wait you selected, the less expensive your disability insurance policy will be.

Finally, once your disability benefit payments begin, they will last until the end of the benefit period. This will depend on whether you purchased a short-term or long-term disability insurance policy.

Business Overhead Expense insurance, also known as BOE, is disability insurance that pays monthly payments to cover business expenses so your business can continue to operate smoothly if you become disabled.

Who can get BOE?

To qualify for BOE, you’ll need to show a certain amount of revenue and typically need to be between the ages of 18 and 64. You also need to have been in business for at least two years. If you work from home, insurance companies usually don’t let you take out BOE insurance.

What does BOE cover?

It covers a range of “usual and customary” business expenses like:

• Wages – Payroll and contributions for benefits, but it does not cover the owner’s compensation, which is generally covered by a separate policy.
• Payroll taxes
• Office expenses – including utilities, equipment, custodial services and laundry services.
• Dues and fees – including licensing fees and professional and trade dues.
• Debts – including paying for accounting, billing, and collection services. It can also pay the cost of making installment payments on debt your business had prior to your disability.
• Real estate – including your office’s rent or mortgage. Associated property taxes should also be covered.
• Insurance premiums – Your property and liability insurance premiums are covered. If you subsidize your employees’ life insurance or disability insurance coverage, those premiums could also be covered as contributions to benefits.

How long do you have to wait to receive benefits?

BOE policies generally have short waiting periods or “elimination periods,” often no more than a month, so that operating expenses can begin to be covered right away. Choosing a longer elimination period means you’ll save money, but there’s a higher chance you’ll recover from an injury or illness before the insurance company must pay benefits.

How much does BOE insurance pay?

Quality BOE insurance coverage should pay 100% of your monthly operating expenses up to your maximum monthly benefit amount.

When you receive benefits, if you had lower expenses in one month, your unused monthly benefits can roll over to the next month. For example, over a 2 month period, if your base monthly benefit is $20,000 per month, but you only used $18,000 the first month, then your BOE insurance can pay up to $22,000 in expenses the next month.

How long do benefits last?

The benefit period should be long enough to cover the business for an extended disability and to determine if the owner will be able to return to the business in, for example, one to two years.

Are there tax advantages with BOE?

Yes! Premiums are tax deductible, but benefits are taxable.

What’s not covered by BOE insurance?

• Your own wages and profit or those of people who pay a portion of your business expenses. You need to have your own individual disability insurance policy to cover your wages.
• The wages and profit of any of your relatives, unless they were employed by your company 60 days or more before your disability.
• Costs that are covered by another source, including those passed on to customers.
• Additions to the office space, including furniture and renovations, paid for after your disability.
• Circumstances like fighting in a war, committing a crime, or self-inflicted harm.

The Bottom Line

BOE insurance helps pay for business expenses if the business owner becomes disabled. Running a business is challenging, even when you’re healthy. Your business probably relies on you, so it makes sense to protect it and your family from your inability to work due to a disability.