Business Overhead Insurance Disability Income

The helpful companion to a business owner’s disability income policy.

Treloar & Heisel

There’s a kind of business insurance known as business overhead expense (BOE) intended to kick in when a business owner experiences a disability. This policy is technically called a business overhead expense disability income policy, but let’s stick with BOE for the purposes of this article. 

So, what does a BOE policy generally cover? If you were to experience an injury or illness of some kind and were consequently unable to work in your practice, and hence unable to generate income, this policy would help cover some of the expenses of running your practice. By expenses we mean things like overhead of keeping the place going, utilities, mortgage or rent, payroll, and taxes. Of course, it does not cover the salary of the disabled owner/dentist—this this is left to a personal disability income insurance policy.

A BOE policy is a helpful complement to a disability income policy. Most dental professionals are familiar with a disability income policy (and hopefully have a good policy in place). Like the name says, a disability income policy replaces income for the dental professional when he/she is unable to work. But it only replaces lost income, or cash in-flow—it does not pay expenses. The BOE goes hand in hand with a disability income policy by covering the cash outflows of a practice. The two, together, generally make for a solid strategy to help protect both the dental professional and the practice in the event of an owner’s disability. 

A BOE policy is not to be mistaken with a Business Owner’s Policy. A Business Owner’s Policy is a kind of property and casualty product intended to compensate an owner for property damage in the event of a catastrophic event, like a fire or specific natural disasters. The purpose of a Business Owner’s Policy is to help you get your practice back together, equip the office, or replace furniture and gear so you can start your practice up again. Business Interruption Insurance may be included in the policy and is intended to help replace business income lost during the period that the office is being restored from a covered property loss.

One of the greatest benefits of a BOE policy is the practice can keep moving forward even if you are not there.

One of the greatest benefits of a BOE policy is the practice can keep moving forward even if you are not there. Assuming you recover from the disability and are able to return to your practice, BOE may help you to return to a “ready practice.” Bills can continue to be paid, staff may continue to be retained, mortgage and rent payments can remain in good standing, and your relationship with creditors will not be impacted negatively. In the event the disability prevents you from returning to your practice, a BOE policy helps buy you time to sell the practice or find some other ways of transitioning it to other owners. You buy yourself peace of mind and space to actually figure out what your next move will be. Not having the BOE may potentially present a huge liability in that you, as the owner, may still be legally responsible for many of the practice’s financial obligations—and here you are, unable to work, unable to generate an income, and unable to meet those obligations.

It’s important to point out BOE covers owners of the practice, not its employees. Each owner-doctor needs to secure a BOE policy based on their share of the practice expenses/ownership. Sometimes, we run across practices that have multiple owners. A person may say that they don’t need BOE because there are multiple owner-doctors, so if one of them gets disabled there are still two other doctors who can keep the practice going. While there’s no denying that having multiple owners helps provide continuity in the event of a disability, it still doesn’t address the issue that most multi-owner practices operate at relative capacity, and when one doctor is no longer working it becomes quite difficult for the remaining doctors to pick up the slack. The bottom line is that having business partners doesn’t relieve you of the need for BOE. If anything, it underlines the need for it because the more complex the practice, the more financial obligations it will likely have.

If you are a business owner considering the risks your practice may face, it may be helpful for you to evaluate a suitable BOE policy. It is possible to rationalize you’ll be able to cover your own expenses in the event of a catastrophic event. In our experience, though, business overhead expenses are substantial, and it just doesn’t make sense to use up reserves or savings to fulfill those financial obligations. Having counseled thousands of dentists and specialists, our firm has unfortunately seen dentists who regretted not purchasing a BOE policy. If and when you’re disabled, the last thing you’ll want to be doing is generating spreadsheets and figuring out how long your cash will last, and how you will make it all work. At that point, the focus should be on your health and how you can get back to wellbeing. 

Our hope is you never have to use it, but if you do, a BOE policy may help maintain your practice’s financial solvency in the event of your disability.

Treloar & Heisel and Treloar & Heisel Property and Casualty are divisions of Treloar & Heisel, Inc. Insurance products are offered through Treloar & Heisel, Inc. This information is intended for general informational purposes only and is not advice. Please consult with your licensed insurance professional. The stated policy definitions and terms are not binding, and your policy should be reviewed to determine the binding definitions and terms. 20-036