When you're ill, BOE insurance
inoculates your business from harm
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.
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
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.
The stats on disability
About 30 percent of people ages 35 to 65
will be disabled for at least 90 days during their working
A 40-year-old is 14 times more likely to
be disabled than to die.
Men have a 43 percent chance of suffering
a serious disability sometime during their working careers.
Women have a 54 percent chance of suffering
a serious disability sometime during their working careers.
For companies with two owners, the odds
are approximately one in three that one owner will become
For companies with three owners, the chances
are almost 50-50.
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
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.
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 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
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
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
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