Prepared for a disability? Business overhead insurance

By Thomas Charla
Thomas Charla is director of business markets at MassMutual.
Posted on Dec 15, 2017

If you own a small business, chances are you play a major role in bringing in revenue — especially if you offer a specialized service your employees may not be able to provide. So if you were to become too sick or hurt to work for an extended period of time, there could be major financial repercussions for your company.

Many people assume that the chances of their becoming disabled for an extended period of time are slim to none. But the truth is, it’s more common than you might think. In fact, there’s a one in four chance that a 20-year old will become too ill or injured to work sometime during their career.1 To protect the business you’ve created, and the employees who help keep it running, it’s important to have a contingency plan. Business overhead expense (BOE) insurance can help protect the business that you worked so hard to build.

Why do I need business overhead insurance?

The need for BOE insurance is clear: If you are temporarily unable to work, your business might have significantly less revenue coming in because of your inability to provide the services your clients and customers need. But you’d still be responsible for your overhead expenses: rent or mortgage payments, loan payments, insurance premiums and utility bills — not to mention employee salaries. BOE insurance can help cover these basic expenses for up to two years after a disabling event. So even though your revenue may decrease, the business can stay afloat while you recover.

One important detail: BOE only covers fixed business expenses. It won’t cover the cost of buying new inventory, equipment or property improvements — anything that’s above and beyond the basic overhead of the business.

Another cost BOE doesn’t cover is the disabled owner’s salary. For this, you would need to have individual disability income insurance — which you should consider if you do not already have coverage. After all, you have your own fixed expenses at home, too.

Plenty of options — and some benefits, too

To figure out how much BOE insurance your business needs, you’ll want to take stock of your overhead expenses. You can use a business expense calculator to get started, or work with a financial advisor for deeper guidance. You’ll also need to determine what share of the expenses are paid for by the revenue you, the owner, bring in. This is the proportion of business costs the policy benefit will cover.

Most insurance companies allow you to customize your BOE insurance policy with a number of different optional riders.2 These might include automatic benefit increases to reflect rising overhead costs over time; partial disability benefits, in case you’re able to return to work, but in a reduced capacity; or benefits to cover the salary of someone brought in temporarily to do your job.

And here’s a perk: The premiums your company pays for BOE insurance are generally tax-deductible. While the benefit payments, on the other hand, are taxable, they are used to pay for overhead expenses which are typically tax-deductible.

Don’t let the lights go out

You know better than anyone just how much goes into owning and running a small business. So while it’s stressful to think that you or another owner might be temporarily disabled at some point, it’s a relief to know that your business can stay healthy — even while you recover.

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Social Security Administration, Publication No. 05-10570, January 2015.
Optional riders available at an additional cost.


Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) (Springfield, MA 01111-0001) and its subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company (Enfield, CT 06082).
Policies have exclusions and limitations. For costs and complete details of coverage call your agent or MassMutual at 1-800-272-2216 for a referral to an agent.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.