Business Overhead Expense Insurance

Triggered by the inability or reduction in ability to work due to sickness or injury, these products are specifically designed to help you pay for the covered expenses of your practice in the event that you become disabled.

Overhead expense policies function like a disability insurance policy. The primary difference between personal disability insurance and business overhead expense insurance is that business overhead expense insurance pays for business expenses but does not replace personal income. Insurable expenses include debt service on business loans, commercial rent, business utilities, taxes, and in some cases, staff or employee payroll. Any small business or practice that depends predominantly on one or two owners to generate the majority of the business or practice’s revenue should seriously consider business overhead expense insurance.

The components of an overhead expense insurance policy are very similar to those of a disability insurance policy. Overhead expense insurance contracts have a monthly benefit, benefit period, and elimination period. These policies may be written on a non-cancellable/guaranteed renewable basis, and are subject to the same definitions of disability as an individual disability insurance policy. Overhead expense insurance policies may also include residual benefits and future purchase options.

Key differences between overhead expense insurance and individual disability insurance policies include:

Shorter Benefit Period – overhead expense insurance is designed to provide a temporary means of funding the fixed costs of owning a business until the disabled revenue generating principal can either return to work or sell the business. Subsequently, benefit periods of 1 – 2 years are typical. Over the course of 12 – 24 months, a disabled business owner is usually able to determine whether he or she can return to work. In the event that the business owner is permanently disabled, 12 – 24 months is generally an adequate amount of time in which to sell a small business or practice under the most favorable terms possible.

Shorter Elimination Period – few small business or practices have sufficient cash to fund fixed business costs for several months. Overhead expense insurance policies are generally structured with 30 or 60 day elimination periods in consideration of that fact.

Higher Benefit Amount – fixed business expenses such as commercial debt service, rent, and payroll are generally far higher than an individual’s personal expenses or income. Overhead expense insurance policies are likewise capable of paying higher monthly benefits, often as high as $30,000 per month. Under some circumstances, significantly higher monthly benefit amounts can be obtained.