When you're ill, BOE insurance
inoculates your business from harm
By Pat Curry • Bankrate.com

If you fall seriously ill or become temporarily disabled, will your business get sick, too?

Disability insurance may provide you with an income while you're recuperating, but the landlord still wants the rent. You still need lights and phones. The lease and insurance on the company car still have to be paid and you have a secretary and a delivery person who are counting on their paychecks.

"A lot of businesses, especially a small one, suffer irrecoverable harm even if they're out of business for a short amount of time," says Dr. Rob Hoyt, an insurance professor in the Terry College of Business at the University of Georgia.

But there's a way to keep your business from ailing when you do: business overhead expense (BOE) insurance.

What it covers
Much like a business interruption policy covers the "what ifs" that go with a fire, a tornado or other damage to the building, BOE insurance pays the ongoing, operating expenses of your business while you're unable to work. Popular and well-known among professionals, such as doctors and dentists, BOE insurance is equally beneficial for other small-business owners, says David Sterling, CEO of Sterling & Sterling Inc. of Great Neck, N.Y.

Like virtually any insurance policy, it's not for everybody and there are limits to what it can and can't do. Designed primarily for small businesses with 15 or fewer employees, BOE is a sub-category of disability insurance. It's a short-term solution to keep things on an even keel until you can go back to work.

While a personal disability policy provides income when you're disabled, BOE is a reimbursement policy that covers ongoing, operating expenses, says Candi Friedman, brokerage manager for Berkshire Life's CorPro Diversified Programs in New York.

It's important to note the difference, Friedman says, between an operating expense and a cost of doing business.

"For example, take the proverbial doctor's office," Friedman says. "Medicine is a cost of doing business. You use up medicine, you buy more. It's not an ongoing fixed expense; it's a supply-and-demand expense. But the rent or mortgage, whether the doctor is in business or not, the bill comes in. The phone bill comes in whether it's used or not."

Another important distinction, Friedman noted, is what's considered "total disability." On an individual disability policy, total disability means you can't work -- at all. You can't lick stamps and stuff envelopes for a living. On a BOE policy, total disability means you can't perform the required functions of your occupation.

Who needs BOE insurance? Anyone whose involvement is crucial to the business.

"If I had a candy store and anyone could run the operation, I wouldn't buy this insurance," Sterling says. "If I had a partner and had a buy-sell arrangement and it was funded, I wouldn't buy it. And you have to have overhead."

For instance, if you're working in a spare bedroom at home, you don't have employees and your only expense is phone service, BOE insurance would be a waste of money.

The cost of BOE insurance
Cost of the insurance will be based on several variables, including your age, sex (women pay higher rates because statistically, they live longer but are more prone to become disabled), the risk category of your profession, your medical background, whether you smoke and, of course, the coverage you need. Obviously, you'll pay more for a policy that pays $15,000 a month for two years than a policy than pays $5,000 for six months. Your payments will rise as you age: The policy that's dirt cheap in your 30s could cost you a fortune in your 60s.

Sterling says he sees premiums running between $2,000 and $10,000 a year, for coverage between $50,000 and $75,000 a year. Friedman says the high end for benefits is $20,000 a month, with rare exceptions. If you belong to a professional association, you may have access to an inexpensive group policy.

The best policies
The best policies on the market are those that are noncancelable and guaranteed renewable. With that policy, the carrier can "never, ever, ever" change any provision of the policy regardless of how many times an insured person files a claim, Friedman says. If the policy is only guaranteed renewable, you can't be dropped, but the insurance company can raise the premium.

"If you can't take that risk, don't do that coverage," she says, "and there's no reason to do that -- there's other coverage available."

You'll also want to check to see if the policy will allow you to carry over benefits from month to month to allow for fluctuating expenses, such as seasonal changes in electricity bills and insurance premiums, and association dues that come due once a year. Some policies also will allow you to take any portion of the benefit that wasn't used in a month -- let's say you had a $10,000 a month benefit and you only had $5,000 in bills -- and use that to extend the term for up to six extra months, if you need it.

Depending on your profession, you may be able to get a rider on the policy that will pay the salary of a person to replace you while you're disabled. Another option is a provision called a residual payment that kicks in if you're partially disabled and return to work part-time. That coverage would pay the difference between the gross income the business is generating and the benefit amount.

Two more items you want to check are that the policy will accept your method of accounting, and that there's an FPO, or future purchase option. You don't want to have to deal with the expense of changing over your books, and you want the coverage to keep up with inflation. An FPO provision gives you the ability to increase your coverage each year, without having to prove your insurability.

Get a fast-starting policy
Finally, while individuals are advised to buy the longest elimination period (the amount of time until benefits start) they can afford for personal disability, you want a 30-day elimination period, the shortest elimination period possible, for BOE insurance.

"There is no reason for someone to use their personal assets to keep their business going, even for one month," Friedman says. "That's what BOE is for."

Since it's a reimbursement policy, the 30-day waiting period should put you right on target for the next set of bills to come in. And remember, call your agent as soon as your doctor says you can't go back to work.

"You want the benefits to start," Friedman says. "Your waiting period is never a payable period. It's the period of time during which you are disabled and don't receive benefits. Your 30-day wait means you don't get any benefits. On the 31st day, you start to accrue benefits. You get your check on the 60th day."

Pat Curry is a freelance writer based in Georgia
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-- Posted: June 2, 2000