Overhead Expense Disability Insurance
Overhead Expense insurance is designed to reimburse your business for overhead expenses during your disability. This type of policy can insure up to $50,000 a month in overhead expenses. No small business can stay open long while the business owner is not generating new revenue. In a very short time, the business will either shut down, or the business will have to be sold. An overhead expense policy is designed to give a business owner the ability to come back to an existing business if he or she is able to do so. Without this coverage the owner may not have this option.
What is Covered?
With many overhead expense policies in the market, you could be reimbursed in case of a disability for any or all of the following:
- Office rent
- Electricity
- Heat
- Utilities
- Telephone
- Real estate taxes
- Interest on debt
- Salaries of employees who are not members of your profession
- Rent or lease expense of furniture and equipment
- Depreciation or scheduled installment payments of principal or debt
It is even possible for a policy to reimburse you up to 80% of the salary you pay a member of your profession hired to fill in for you, for up to six months. Because there are many different policies available in the marketplace, please make sure to consult with your agent or broker to discuss what expenses would be covered in the event of a totally disability.
How to Enhance Your Protection
Own-Occupation
Just as in your personal disability income insurance, own-occupation definitions are extremely important.
Residual Benefits
A residual rider will cover a partial disability. If you suffer a disability that limits you to part-time work, your practice`s gross revenue may decrease to the point where you cannot meet your office`s expenses. In such a case, you would certainly need help to pay your office bills, just as you would if you suffered a total disability. A residual rider will typically pay you the difference between current expenses and current gross revenue up to the amount that would be payable if you were totally disabled.
Future Purchase Option
The Future Purchase Option allows you the option to apply for increases to your coverage annually, to help your benefits keep up with inflation.
Over the course of time, your expenses inevitably increase because of the growth of your practice, or because of inflation - sometimes to the point where they can no longer be handled by your original overhead coverage. One very valuable provision to help with this is a Future Purchase Option - giving you the right to increase your coverage each year, without proof of medical insurability, until a certain, but subject to financial underwriting.
Tax Considerations
Professional Overhead Expense Insurance offers several tax advantages to your practice:
- Premium payments are tax-deductible as a reasonable business expense
- Overhead expense benefits received during disability, while taxable upon receipt, are used to pay practice-related expenses which are tax-deductible. The net tax result is a "wash."
This publication is offered for the purposes of education and information only and should not be considered tax or legal advice. For information on your specific situation, please consult your legal or tax advisor.