Business Overhead Expense Insurance: A 2024 Guide
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Discover the methodologyBusiness overhead expense insurance covers your company's fixed expenses, like rent and salaries, if a key person can't work due to illness or injury. It helps keep your business running smoothly during tough times and offers tax-deductible premiums, making it a smart, cost-effective safety net.
In this article, we take you through how business overhead insurance works, what it covers, and how much it costs.
Business Overhead Insurance: 4 Key Takeaways
- Business Overhead Expense Insurance covers fixed expenses when a key partner is disabled or ill.
- Unlike business interruption insurance, it does not replace lost income.
- Policies can be tailored to specific business needs, making them cost-effective.
- Premiums may be tax deductible, helping offset the policy's cost.
What is business overhead expense insurance?
Business overhead expense insurance is a financial lifeline for companies when they face an unexpected absence of a key partner. If the absence is due to a critical illness, disability or injury, the insurance will reimburse the company for essential fixed costs such as rent, employee salaries and utilities.
The business overhead expense insurance can, therefore, keep your company ticking over even when in rough seas. By not having to worry about essential costs, your business gets time to adapt to the changing situation and either focus on finding a replacement or simply weathering the storm until the key person can resume day-to-day duties.
Good to know
Business Overhead Expense Insurance covers fixed expenses when a key person is unable to work due to illness or injury. In contrast, Business Interruption Insurance covers lost income and operating expenses due to physical damage or loss causing business disruption.
What does business overhead expense insurance cover?
Business overhead expense insurance pays for a company’s essential and fixed business expenses when a successful claim is made. As the term ‘overhead’ in the product’s name indicates, these expenses include all the ongoing costs of operating a business.
Specifically, BOE coverage will pay for expenses including:
- Commercial office rent
- Office Supplies
- Salaries
- Utilities
- Rental equipment costs
- Professional dues and memberships
- Business loan interest
- Mortgage loan interest
- Business liability insurance premiums
- Accounting fees
Watch out!
Business overhead expense insurance should not be mixed up with key person insurance. Key person insurance only pays benefits equaling a loss in income due to an essential worker’s inability to work, whereas business overhead expense insurance will cover a business’s monthly expenses.
If you're considering BOE insurance for your small business, look no further. Use HelloSafe's business insurance comparison tool to receive free quotes straight to your email. You can compare multiple quotes online for free.
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How does business overhead expense insurance work?
Business overhead insurance works by paying a company’s fixed monthly expenses when a business owner or co-owner suffers an illness or injury that forces them out of work. After a successful claim is made, the benefits will be paid for a fixed amount of time, subject to an elimination period and up to a maximum benefit amount.
Business overhead expense insurance benefit period
The maximum benefit payment period is usually 2 years. This can, however, fluctuate depending on the insurance contract. Where a company wants to save money on premiums, they can request a shorter period of coverage. Contrarily, if a company wants a longer coverage period, they can expect their premiums to increase.
The benefit payment period itself, specifically refers to the maximum amount of time that the insurance will pay for any given illness or disability.
Business overhead expense insurance elimination period
The elimination period is a pre-determined amount of time that will lapse between when an insured becomes disabled and when benefits start getting paid. Business overhead expense insurance elimination periods usually vary between 15 to 90 days. A shorter elimination period results in a higher premium since benefit payments will kick in sooner.
Business overhead expense insurance benefit amount
Overhead expense insurance pays for a company's fixed expenses every month. However, each policy will have a pre-determined maximum benefit limit that both parties of the contract will agree to. A company’s previous monthly expenses usually determine the maximum benefit amount.
Accumulation Benefit
Monthly overhead expenses naturally vary within a company and may be higher than the maximum benefit amount. An accumulation benefit clause in your policy may cover the discrepancy and it works in the following way.
Suppose, in any given month, the paid benefit amount is lower than the maximum benefit limit. In that case, the company can request to roll over any unused benefits into a month where business expenses exceed the maximum benefit.
What does business overhead expense insurance not cover?
The insurance benefit will not be paid when an insured suffers from an illness or injury but is not under the continued care of a physician or medical professional. Furthermore, the benefits are not payable when the business owner is disabled or injured but still able to work.
Additionally, the covered monthly expenses are only related to fixed business costs and do not cover the following:
- Any cost of sales or similar services
- Expenses incurred during the elimination period
- Purchasing extra inventory
- Travel or entertainment-related business costs
- New expenses that the business was not liable for before the disability
- Time off due to pregnancy or childbirth (disabling complications from either are still covered)
- Disability caused by war
Expert advice
Business overhead expense insurance does not cover the business owner’s salary, fee or other remuneration that they may be entitled to even though this falls under the company’s salary expenses. Where needed, private income protection insurance should be considered by the insured.
5 benefits of business overhead expense insurance
If you’re still unsure if business overhead expense insurance is right for your business, maybe these five benefits of BOE protection will help you decide.
- Financial stability during disability: BOE protection provides a company with financial security and stability when a key owner or operator is unable to steer the company. By not having to worry about fixed costs like rent payroll, the paid benefits allow a business to temporarily scale down and let the insured focus on recovery.
- Employee peace of mind and business continuity: Employees can feel safe in the knowledge that the company will remain afloat even when an owner is out of action, and that there will be no disruption to their pay.
- Tax advantages: The premiums a company pays for BOE insurance can be deducted as a business expense on a tax return, lowering the overall costs of the insurance. Additionally, while BOE benefits are taxable, businesses can offset their overall tax burden if the benefits are used to pay for tax-deductible business expenses.
- Waiver of premiums: Some policies include a stipulation that when a disability continues for over 3 months, then the coverage may continue without having to pay further premiums.
- Recurrence of disability: Another feature of certain BOE policies, the recurrence of disability aspect of a plan means that if an owner suffers a subsequent disability after returning to work, that is related to a previous successful claim, they will not have to complete another elimination period.
If these benefits have pushed you to consider BOE protection, get a quote using our online business insurance comparison tool below. You can compare multiple free quotes personalized to your business right here.
How much does business overhead expense insurance cost?
The average cost of business overhead expense insurance for $2,000 monthly coverage with a 30-day elimination period is approximately $30.20 per month or $335.56 per year. Actual costs may vary based on individual factors and policy specifics.
Here is how much business overhead expense insurance would typically cost you based on age. The below figures are from Manulife Business Overhead Insurance.
| Age Group | Monthly Premium (14-Day Elimination Period) | Monthly Premium (30-Day Elimination Period) |
|---|---|---|
| Under 30 | $0.90 | $0.70 |
| 30-34 | $1.02 | $0.81 |
| 35-39 | $1.33 | $1.12 |
| 40-44 | $1.44 | $1.26 |
| 45-49 | $1.64 | $1.49 |
| 50-54 | $1.89 | $1.67 |
| 55-59 | $2.19 | $1.98 |
| 60-64 | $2.38 | $2.17 |
| 65-69 | $2.64 | $2.40 |
- Premiums are per $100 monthly benefit, and they increase with age and are subject to change. To calculate the annual premium, divide the monthly premium by 0.09.
- 14-Day Elimination Period: Benefits start being paid 14 days after the insured person becomes disabled or ill.
- 30-Day Elimination Period: Benefits start being paid 30 days after the insured person becomes disabled or ill.
Good to know
You can explore top insurance providers and brokers like Zensurance and Foxquilt to compare what type of coverage works best for your business and how much it costs online.
How the cost is calculated
Determining the exact cost of BOE insurance is difficult due to the number of factors that influence its price. Unlike normal business insurance which only needs details of the company, or life insurance which focuses solely on the individual, business overhead expense insurance premiums are determined by variables relating to both the business and business owners.
The key factors influencing BOE costs include, but aren’t limited to:
- Occupation: The specific job(s) of the business owner to be insured
- Industry: The sector in which the business and owner operate
- Monthly expenses: The company’s monthly fixed expenses to be covered by the policy
- Health status: The physical well-being of the business owner, including smoking status
- Age and gender: Premiums are heavily influenced by the owner’s age and gender
- Benefit amount: The maximum monthly benefit to be paid upon a successful claim
- Elimination period: The time that needs to lapse between disability occurring and benefits being paid
- Benefit period: The maximum amount of time that the benefit will be payable
While business overhead expense insurance costs can’t be predicted, anyone looking for coverage can use the tool below to request a quote from some of the top BOE providers in Canada. Compare multiple business insurance quotes online from Canada's top providers right here using our free tool.
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Should I consider business overhead expense insurance?
Business overhead insurance is specifically designed to cater to small business owners and companies or firms where an owner or other principal greatly influences its ability to generate an income. Usually, this includes smaller law firms and accounting practices, but also includes a wider scope of businesses such as physicians, engineers and sales companies.
Therefore, business owners should consider buying business overhead expense insurance if they know that they have a large amount of influence on the business’s success, and where their extended absence will significantly hurt the company’s bottom line.
How does business overhead expense insurance taxation work?
Tax on business overhead expense insurance works in two ways: premiums are tax-deductible and benefits may be taxed.
- Tax deductible premiums: The premiums paid for business overhead expense insurance can be deducted as a business expense.
- Taxed benefits: The benefits paid to the company are largely considered taxable income and, therefore, taxed as such. However, since the benefits are used to cover ongoing business expenses that are deductible, the overall tax burden is effectively offset.
