Last updated: November 24th, 2022
Reviewed by
Paige Geisler
Licensed Insurance Agent
If you become disabled and can’t run your business for a period of time, many of these overhead expenses still need to be paid, even though your business isn’t earning the same revenue. Business overhead expense insurance will cover these expenses until your business is running at full speed again.
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Business overhead expense insurance (BOE) is a type of insurance that helps protect your business if you become disabled and cannot work, resulting in lost revenue. It can help to cover costs such as employee wages, office expenses, rent, and insurance. In order for BOE insurance to provide coverage, your business must meet certain requirements, including having an established business operation for at least 2 years and earning adequate revenue. Your agent can discuss what conditions their company specifically requires.
There are a few general requirements to qualify for business overhead expenses insurance. Typically, an insurance company needs the following conditions to be met:
However, these policies are not always set in stone, and every insurance company has different rules. You should talk to a reputable broker about your situation; they may be able to find a policy that works for you.
You can set your coverage amount when you purchase a policy, but ideally, business overhead insurance should cover 100% of your company’s overhead expenses each month. Anything short of that and you risk being unable to pay your bills.
A nice feature of many BOE policies is that if your expenses are lower than usual one month, the leftover amount the policy doesn’t have to pay gets carried over to the next month. So, if you have $15,000 per month worth of coverage, but your expenses only come to $14,000 one month, the extra $1,000 gets carried forward in case your business encounters an unexpected overhead expense at some point.
You can choose the benefit period when you buy BOE coverage, but it’s generally offered for periods between 12 and 30 months in 6-month increments.
Business overhead insurance covers expenses that are necessary for the continuance of the business. These include:
Business overhead insurance usually doesn’t cover your wages or those of your family members who work in the business. It also doesn’t cover items not considered essential to keeping your business running, such as marketing and advertising costs and additions to your office space. It won’t cover any losses to property or liability claims as well. These types of losses require different policies. BOE insurance is designed solely to protect the business from failing if the owner or key employee cannot perform their normal duties necessary to the functioning of the business.
As with most insurance, the premiums you pay for BOE coverage are usually tax-deductible, but the benefits you receive in the event of the claim are taxed as income. If you use those benefits to pay expenses, though, the expenses themselves may be tax-deductible. A concrete way to make sure you’re claiming your insurance and expenses correctly on your tax return is by asking your tax preparer. Many insurance brokers won’t know the implications of taxes on BOE insurance, so always speak with a licensed tax professional.
You can get business overhead insurance from your current agent, a local broker, or an online source. Just be sure to ask a lot of questions and read the policy carefully before signing because they’re not all the same. You want to be sure your BOE policy will pay the overhead expenses you need to keep your business running while you’re away.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
Paige is an assistant agent for State Farm and is licensed to sell property and casualty, health, and life insurance in Virginia. She handles all different types of insurance and financial services and is currently working on a securities and bonds license. Paige has a degree from Radford University in English and is a certified notary.
