What Business Overhead Expense Insurance Covers, and What It Doesn't

Business overhead expense insurance helps a practice or small business keep paying fixed costs while the owner is disabled. Understanding its limits helps avoid gaps and overlap with personal disability coverage.

When a practice owner or producing business owner becomes disabled, revenue may fall immediately while rent, staff salaries, and lease payments continue. Business overhead expense (BOE) insurance is designed to reimburse eligible fixed expenses during that period.

Eligible expenses typically include rent or mortgage interest on business property, utilities, non-owner employee salaries, equipment leases, and business insurance premiums. Policies generally exclude the owner's own compensation, inventory or cost of goods sold, and expenses that would not continue during the owner's absence. Definitions vary, so the contract language matters.

BOE benefit periods are relatively short, commonly 12 to 24 months, because the coverage is intended to give the owner time to recover or arrange a sale or transition. Elimination periods are often between 30 and 90 days.

BOE is separate from personal disability income insurance, which protects the owner's own earnings, and from disability buyout insurance, which funds the purchase of a disabled owner's interest under a buy-sell agreement.

Premiums for BOE coverage are generally deductible as a business expense and benefits are generally taxable, which offsets the deductible expenses being reimbursed. Underwriting includes both the owner's health and documentation of business expenses. Confirm tax treatment with your CPA.