Entrepreneurs understand that life insurance can help cover both current and future financial risks to our family, business partners, bankers or others who may have a financial interest in our business, should we pass away prematurely. Most also know that disability coverage is designed to replace our lost income earning ability if we can’t work because of sickness or injury. And some understand that critical illness coverage pays out a tax-free lump sum if we suffer from any of the covered conditions, with cancer, heart attack and stroke, the three leading causes of critical illness claims.
But think about how your business would be impacted if you or an employee who is critical to the success or failure of your business were not able to go to work. Businesses or practices such as physicians, lawyers, accountants, contractors, or other hands-on type operators understand that the owner’s ability to generate income makes the difference between being open or closed for business. The missing coverage is often Business Overhead Expense insurance.
Business overhead expense coverage can protect you, your family, your staff, your clients and your business if either sickness or injury prevents you from coming to work for an extended period of time. Having the basic business overhead bills paid helps provide sufficient time to recover and still have a business to come back to. Or in the worst case scenario, it provides time to sell your business for fair market value, rather than being forced to fire sale it at a significantly discounted price.
A business overhead expense plan can cover:
- Rent or lease costs for your office or business location
- Property taxes and mortgage interest payments plus any depreciation or principal payments
- Office Maintenance and utilities (heat, water, electricity)
- Telephone, internet, postage, paging, fax and answering services
- Employee salary and benefits (except as below)
- Any management company fee (excluding family owned firm)
- Legal and accounting services
- Professional Association membership fees
- Property and liability insurance premiums
- Leased equipment or interest plus depreciation or scheduled principal payments
- Interest & principal on a loan from a financial institution to purchase the business
- Any other fixed expenses considered normal and customary for business operation
Expenses that are not covered:
- Cost of acquiring goods for sale, supplies or additional inventory
- Salaries, fees, draws, or remuneration for the insured person(s), members of the profession or related professions, or anyone sharing expenses with the insured person(s)
These policies reimburse the policy holder for actual overhead expenses incurred up to a maximum monthly benefit. Typical waiting periods are 30, 60 or 90 days, and benefits are paid up to two years.
The policy premiums are tax deductible as a business expense, and benefits paid are reportable as income. The premium amount is based on the insured person’s age at time of purchase, their occupational duties, health status, optional riders selected, waiting period and benefit period. Once a policy is issued, coverage can’t be increased without providing new medical information unless a future increase option is purchased at the time of application.
As with all insurance, it’s best to do a thorough needs analysis with a qualified, licensed life insurance professional to determine the right plan for your business, that’s both affordable and fits your individual needs.
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