What is Business Overhead Insurance?

Business overhead insurance (or business overhead expense insurance) is a safety net for small businesses, providing continuous financial support during hard times.

It's a type of disability insurance specifically for business that helps cover regular business expenses such as rent, utilities, and salaries if the owner becomes unable to work due to a disability. It ensures that day-to-day operations continue smoothly, reducing stress. 

What is Business Overhead Expense Insurance?

Business overhead expense (OE) insurance is an important financial tool for small to midsize businesses, reimbursing business expenses such as rent, utilities, salaries, and more in the event of a disability that prevents the business owner from working. This protection ensures that the business can continue its operations during challenging times by providing a tax-deductible monthly benefit. 

Imagine that you decide to open a coffee shop. So far, business has been productive and rewarding. However, what if something unexpected happens to you or one of your key employees, such as an injury or an illness? Not only does this mean physical hardship, but there are also bills to be paid. In this situation, Business Overhead Expense (OE) Insurance can help.

This special type of insurance covers ongoing costs that keep the business running. The monthly benefit can be used for things like rent, utilities, salaries for employees, and even supplies. 

In this way, business overhead insurance not only covers bills but safeguards the livelihoods of employees and preserves the relationships you’ve built with customers over time.

Why Do Small Businesses Need Overhead Expense Insurance?

Running a small business can be exciting, but it also comes with a fair share of uncertainties. 

Small businesses often operate on a tight budget. This means that any disruption can have a significant impact and that without proper insurance, the financial burden might fall squarely on the owner's shoulders. Business overhead expense insurance covers crucial expenses like rent or mortgage, salaries, utilities, and other ongoing costs that keep the business running. 

With all that in mind, you can see that obtaining overhead expense insurance is not just an option but often a necessity for securing the future of small businesses and their owners' personal finances.

Different Types of Overhead Expense Insurance

When considering overhead expense insurance for your small business, it's important to know that there are different types tailored to meet the needs of different business structures.

1. Individual Business Overhead Expense Insurance

This type of policy is ideal for a sole business owner who wants to ensure that their business can continue operating in the event of their disability. Individual business overhead expense insurance is designed to cover the overhead expenses of a single business owner, providing financial protection to keep the business running smoothly when the owner is unable to work due.

2. Group Business Overhead Expense Insurance

In contrast to individual coverage, group business overhead expense insurance is intended for businesses with multiple owners or partners. This type of policy helps manage the collective overhead costs in the event of a disability affecting one or more business owners. By sharing the financial responsibility through group coverage, businesses can ensure that all owners are protected and that the business can continue its operations without facing overwhelming financial strain if one partner develops an illness or disability.

For example, consider a small law firm with multiple partners. If one of the partners faced a long-term disability, it could significantly impact the firm's ability to cover its business expenses. However, with group business overhead expense insurance in place, the remaining partners can rely on the policy's benefits to help manage the firm's overhead expenses while continuing to serve clients.

Similar to a group benefits insurance plan, the right business overhead expense insurance policy is based on your business structure and ownership arrangement.

Eligibility and Coverage of Expense Insurance Policies

When it comes to securing business overhead expense insurance, insurers have specific criteria such as  age requirements. They may also categorize occupations, with specific eligibility requirements for each class.

For example, an insurance company might differentiate between manual labour and office-based positions when determining eligibility because certain roles may carry a higher or lower inherent risk.

These factors emphasize the importance of getting protected sooner rather than later since finding appropriate coverage may become more challenging if health concerns or high-risk activities emerge.

Coverage Details

In addition to the eligibility criteria, small business owners should understand what is covered by business overhead expense insurance. Covered expenses typically include rent/mortgage, utilities, employee salaries, professional association dues, and certain taxes.

Remember, policy coverage details may differ from one provider to another. As a small business owner, you should thoroughly review and understand the specifics before finalizing a business overhead expense policy. This step is vital to ensure that the coverage aligns with their unique business needs and priorities.

For example, if you own a small retail business, your overhead expenses may include storefront rent, utilities, and payroll costs. If you're a freelance consultant operating from a home office, however, you may use the benefit payments to cover overhead expenses like professional association dues and personal workspace utility costs. 

Business owners can make informed decisions based on their specific needs by understanding what is and is not covered under a business overhead expense policy. 

Carefully reviewing eligibility criteria and coverage details ensures that small business owners can obtain an appropriate insurance policy that meets their requirements.

How to Make a Claim for Overhead Expense Insurance 

Making a claim for overhead expense insurance may seem daunting, but with the right information and guidance, it can be pretty straightforward.

When it comes to making a claim for overhead expense insurance, documentation is key. To initiate the claim process, you must gather all relevant documents to support your eligibility and financial loss. This typically includes medical records, receipts for expenses incurred during your disability period, proof of your pre-disability earnings, and any additional documentation required by your insurance provider.

If it seems overwhelming at first, remember that insurance providers have professionals who are there to assist you. They can guide you on what documents are essential and help ensure that your claim is processed quickly. Every insurance company may have slight variations in their claims procedures and what they consider a business expense, so it's important to review your policy terms carefully or consult with an insurance agent. For example, the insurer will decide what qualifies as actual expenses incurred.

Once you make an eligible claim, there will be an elimination period after the illness or disability occurred, usually 30 days. Following this you will be in the benefit period, meaning that the insurance company will provide you with a monthly benefit which can be used to cover business expenses. These benefit payments are also tax deductible for the business, unlike other types of disability insurance.

By making a claim for overhead expense insurance, financial support will be available to keep your business running smoothly until you can get well again. 

Just like filing an insurance claim for a car accident or property damage, understanding the process of making a business overhead insurance claim and having all the necessary documentation readily available will help make the process as easy as possible.

Continuity Planning and Business Overhead Expense Insurance

As a small business owner, you know that it takes time, hard work, and dedication to build and maintain a successful company. However, unforeseen events such as accidents or illnesses can always come when you least expect them. 

This is where business continuity planning comes into play. It involves creating a plan that allows a business to continue in the event of various unexpected situations. One important component of this plan is Business Overhead Expense (OE) Insurance.

Businesses are like complex machines that rely on the work of a bunch of small parts to function smoothly. If one part stops working, the entire machine may come to a halt. In the context of a small business, your absence due to illness or injury can cause disruption that really damages your business.

Employees need to be paid, rent needs to be covered, and utility bills need to be settled. Having OE Insurance as part of your continuity plan keeps your business running even in your absence.

Conclusion

Business overhead expense insurance is there to protect your business if one of the owners or key employees becomes sick or injured. Even if you are fortunate enough not to have these events occur, having this insurance in place can provide peace of mind to you as a business owner.

Knowing that expenses would be covered in the event of an unforeseen disability can help relieve worry and allow you to focus on regular business operations.

Have more questions about business overhead or other types of life insurance? Book a free call with a Dundas Life licensed advisor today.