What is business overhead expense policy?
A business overhead expense (BOE) policy is a type of disability insurance designed to cover a business’s fixed operating costs if the owner becomes temporarily disabled or unable to work. It ensures that essential expenses like rent, payroll, and utilities continue to be paid, keeping the business operational during the owner’s recovery period.
What is a business overhead expense policy?
A BOE policy reimburses the business for ongoing overhead expenses when a key owner or operator can’t work due to illness or injury. Unlike personal disability insurance, which replaces income, a BOE policy helps sustain business operations and prevent financial disruption. Coverage typically lasts for a limited benefit period (often 12 to 24 months) to give the owner time to recover or find a long-term solution.
What does a BOE policy cover?
- Rent or lease payments for business property.
- Employee salaries and payroll taxes (excluding the owner’s personal income).
- Utilities such as electricity, water, and internet.
- Business insurance premiums and loan payments.
- Accounting, legal, and professional fees.
- Property taxes and office maintenance.
- Equipment leases or depreciation.
- Business subscriptions and software costs.
What does a BOE policy not cover?
- The owner’s personal income or replacement wages.
- New capital purchases or long-term equipment upgrades.
- Non-essential or discretionary expenses unrelated to business continuity.
- Disability benefits for employees (covered under separate policies).
Tax implications for a BOE policy
- Premiums paid for a business overhead expense policy are tax-deductible as a business expense.
- Benefits received from the policy are taxable income to the business when used to pay expenses.
- BOE coverage helps maintain deductible business expenses like rent, payroll, and utilities even during the owner’s disability.
- Keep documentation of premium payments and claims for accurate financial and tax reporting.
