business-overhead-expense-coverage — insurance and protection planning

Business overhead expense (BOE) insurance reimburses a business's fixed operating costs when the owner becomes disabled and cannot work. This coverage keeps the business running during the owner's recovery period, preserving the enterprise value and allowing the owner to return to an intact operation.

What BOE Insurance Covers

BOE policies pay for the ongoing fixed expenses that continue regardless of whether the business generates revenue:

Covered Expenses:

Rent or mortgage payments on business property
Utilities (electricity, gas, water, internet, phone)
Employee salaries and payroll taxes
Equipment lease payments
Business insurance premiums (liability, property, malpractice)
Professional dues and subscriptions
Accounting and bookkeeping fees
Office supplies and maintenance contracts

Not Covered:

Owner's salary or draw
Owner's benefits (health insurance, retirement contributions)
Owner's share of profits
Business expansion costs
Variable costs that stop when the owner stops working
Costs of hiring a replacement for the owner's professional duties

The distinction matters: BOE insurance maintains the business shell, not the owner's personal income. Owners need separate individual disability insurance to replace their personal earnings.

Policy Structure and Terms

Benefit Amount

BOE policies pay up to a maximum monthly benefit, typically ranging from $5,000 to $30,000 or more depending on documented business expenses. The actual payment each month equals the lesser of:

Your covered expenses that month, or
The policy's maximum monthly benefit

If your covered expenses total $12,000 but your policy maximum is $10,000, you receive $10,000.

Elimination Period

The elimination period is the waiting time before benefits begin, typically 30, 60, or 90 days. Shorter elimination periods cost more in premiums. Most business owners choose 30 days because fixed expenses come due monthly.

Benefit Period

BOE policies typically offer benefit periods of 12, 18, or 24 months. This differs from individual disability insurance, which often extends to age 65. The shorter benefit period reflects the policy's purpose: keeping the business viable during a recovery period, not providing indefinite support.

Definition of Disability

Most BOE policies use an "own occupation" definition, meaning you're considered disabled if you cannot perform the material duties of your specific occupation. A surgeon who injures their hand is disabled for surgery even if they could do administrative medical work.

Premium Costs

BOE premiums depend on:

Monthly benefit amount
Elimination period
Benefit period
Your occupation and health
Your age at purchase

Typical Premium Ranges:

Monthly Benefit	Elimination Period	Benefit Period	Monthly Premium
$5,000	30 days	12 months	$50-100
$10,000	30 days	12 months	$100-200
$10,000	30 days	24 months	$150-250
$15,000	30 days	18 months	$175-300
$20,000	30 days	24 months	$250-400

Higher-risk occupations (surgeons, dentists, construction contractors) pay premiums at the higher end. Lower-risk professions (accountants, attorneys, consultants) pay toward the lower end.

Worked Example: Medical Practice

Dr. Sarah Chen operates a solo internal medicine practice. She wants to determine appropriate BOE coverage.

Monthly Overhead Expenses:

Office rent: $4,500
Utilities: $400
Staff salaries (2 employees): $7,200
Payroll taxes: $550
Equipment leases: $800
Malpractice insurance: $600
Business liability insurance: $150
Professional subscriptions: $100
Accounting services: $300
Office supplies/maintenance: $400

Total Monthly Overhead: $15,000

Dr. Chen selects the following coverage:

Monthly benefit: $15,000
Elimination period: 30 days
Benefit period: 18 months
Monthly premium: $275

Scenario: Dr. Chen has a serious back injury

She cannot see patients for 5 months. Here's how the coverage works:

Month 1: Elimination period. Dr. Chen pays $15,000 from reserves.
Months 2-5: Insurance reimburses $15,000/month = $60,000 total
Month 6: Dr. Chen returns to work

Total claim paid: $60,000 Total premiums paid over 3 years before claim: $9,900

Without BOE coverage, Dr. Chen would have needed $75,000 in reserves to cover 5 months of overhead, or she would have had to close the practice.

Tax Treatment

BOE premiums and benefits receive favorable tax treatment:

Premiums: Deductible as a business expense. A $275 monthly premium reduces taxable business income by $3,300 annually.

Benefits: Taxable as business income. However, since the benefits pay deductible business expenses (rent, salaries, utilities), the net tax effect is neutral. The insurance payment is income, but the expenses it pays are deductions.

This differs from individual disability insurance, where premiums paid with after-tax dollars produce tax-free benefits.

Who Needs BOE Insurance

BOE coverage makes sense for:

Solo practitioners (physicians, dentists, attorneys, CPAs) whose practice stops generating revenue when they cannot work
Small business owners with fixed overhead and few employees who could maintain operations without them
Professional practices with expensive leases and staff dependent on the owner's production

BOE coverage may be less necessary for:

Businesses with multiple partners who can cover for each other
Businesses with managers who can maintain operations without the owner
Businesses with minimal fixed costs
Owners who have substantial cash reserves (6+ months of expenses)

Coordination with Other Coverage

BOE insurance fills a specific gap in a comprehensive disability plan:

Individual Disability Insurance: Replaces the owner's personal income (salary, draw, benefits). Typical coverage is 60-70% of income.

Business Overhead Expense Insurance: Pays business operating costs only.

Key Person Disability Insurance: Compensates the business for lost revenue due to a key employee's disability. This is different from BOE.

A practice owner earning $300,000 annually with $15,000 monthly overhead might carry:

Individual disability: $15,000/month benefit
BOE: $15,000/month benefit

Together, these policies maintain both personal income and business viability during disability.

Selecting a Policy

When evaluating BOE policies, examine:

Definition of covered expenses: Some policies have narrower definitions. Ensure your major expenses qualify.

Proof of expenses: Understand what documentation you'll need to file claims. Most insurers require receipts or bank statements.

Partial disability provisions: Some policies pay proportional benefits if you can work part-time but not full-time.

Future increase options: Some policies allow you to increase coverage as your overhead grows, without new medical underwriting.

Insurer financial strength: Check ratings from A.M. Best, Moody's, or S&P. Choose insurers rated A or better.

Pre-Purchase Checklist

Before purchasing BOE coverage, verify the following:

Business Overhead Expense Coverage