Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Aug 13, 2020

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Business overhead expense insurance is a type of disability insurance for small businesses that pays benefits to reimburse business expenses. If a business owner or key person becomes disabled, business overhead insurance provides the business with money to continue operating without its key contributor.

TIP: If you own a business, insure against a disability with business overhead expense insurance. Your business expenses will be covered even if you are unable to continue working.

Covered Business Overhead Expenses

Most business overhead expense policies cover certain operating costs of the business up to the policy limits. Typical expenses covered by a business overhead expense insurance policy include:

  • Utilities
  • Leased equipment
  • Office supplies
  • Salaries of non-owner, non-family employees
  • Normal rent, lease and, possibly, mortgage payments
  • Insurance premiums, including property, liability and malpractice insurance
  • Legal and accounting fees
  • Business taxes
  • Furniture and other business equipment costs

Expenses NOT covered under a business overhead expense policy are:

  • Salaries of the business owners
  • Salaries of anyone hired to replace the insured person
  • Salaries of individuals employed in the business who do the same type of work as the insured person (e.g., a fellow doctor, attorney or accountant)
  • Salaries of family members who were not working in the business prior to the insured person’s disability

There are some enhanced business overhead expense policies that pay for part of the salary of a person of the same profession as the insured. For example, in a doctor’s office or an accounting business where the owner hires another doctor or accountant to fill in for the disabled person in order to keep business going.

Collecting Benefits From a Small Business Disability Insurance Policy

In order to start collecting your disability benefit under your business overhead expense policy, the policy normally requires two conditions which must be met:

  • Total disability due to injury or sickness must be present, and
  • The expenses covered by the policy must be incurred during the disability.

Therefore, the payment would start once the insured becomes disabled, and would only cover expenses that have been incurred during that time period. Make sure you understand how your business overhead expense policy will define disability. If your policy does not consider you to be disabled, then you will not receive benefits.

Riders to Enhance Business Overhead Insurance Coverage

There are riders that you can add to your business overhead expense policy that will give you better coverage and protection. Ask your agent if any of these riders would be beneficial in providing you with more sufficient small business disability insurance needs.

  • Residual Riders- If you suffer a disability that limits you to part-time working status, your business’s gross revenue may decrease to the point where you cannot meet your expenses. To be eligible for benefits, however, most business overhead expense policies require total disability. Residual benefits riders pay the difference between current gross revenue and current expenses if you are partially disabled. Other provisions may be required, but this is a good option to have if you are only partially disabled.
  • Carry-Over Provision- In many businesses, expenses fluctuate, meaning one month they might be less then the monthly policy payable benefit and other months the expenses might be more. Building a carry-over provision into the policy solves this problem. When monthly expenses are less than the maximum monthly expense benefit, the unused benefits are simply carried over and made available for use in months when expenses exceed the maximum monthly benefit. Under certain conditions, overhead expenses may actually continue to be reimbursed even beyond the indemnity period.
  • Future Purchase Options- As your business grows, so do expenses. The expenses sometimes exceed your business overhead expense coverage. Adding this rider gives you the right to increase coverage each year, without proof of medical insurability, until a certain age.

Some of these riders are business specific. Ask your agent if your business would be entitled to add some of these riders to its small business disability insurance policy.

Having disability insurance for a small business is crucial to any type of risk planning. Talk with an agent today about a quote on business overhead insurance in order to cover you for the unexpected and to ensure that your business can continue even with the disability of its key player. To get a free quote, click here to visit the Free Advice disability insurance quote center today.