Disability Insurance Basics: Business Overhead Expense Policies
We have previously discussed how important it is to periodically review your disability insurance policies to make sure your coverage and benefit amounts reflect where you are at in your career. Most physicians and dentists purchase a disability policy at the beginning of their careers. However, as time goes on, their financial situation, family life, and practice can evolve into something completely different that requires a different level of coverage.
A “business overhead expense policy” is one type of policy that many doctors consider when they have reached the point in their career where they are purchasing their own practice. These policies are designed for practice owners and cover short term business-related expenses. If you become disabled, these policies can help you cover day-to-day operations for a certain period of time (typically 1-2 years) to give you time to heal and return to practicing (or, alternatively, give you time to sell the practice, if you have a condition that is more permanent in nature and are having difficulty finding a buyer).
Like any disability insurance policy, each BOE policy is unique. Some common covered expenses can include:
- Real estate and property taxes
- Laundry, janitorial, maintenance services
- Licensing fees and dues
- Insurance premiums
- Billing and collection fees
- Interest on debts
- Depreciation or scheduled installment payments on principal of debt
- Rent or lease expenses on items such as furniture, equipment, other assets used in the practice
- Normal, necessary, and customary fixed expenses
- Salary(ies) of substitute employee(s) – this can be especially attractive to sole practitioners, who may need to employ another dentist or physician to keep their practices in operation
Keep in mind that a business overhead expense policy will typically not cover your lost wages, and typically only last for a limited time, so you will need to have other policies to protect your own monthly income in the event of a long-term disability. Some business overhead policies also contain a list of costs that are not covered by the policy, such as:
- The cost of goods or merchandise
- Implements of your profession
- Premiums waived due to disability
- Income or self-employment taxes
- Purchases (such as equipment) after the date of disability
- Prepayment or advance payment of covered overhead expenses
- Salaries for employees that are also family members
Consequently, it is important to read your policy carefully so that you have a clear understanding of the expenses that are covered and the expenses that are not.
These are just a few examples of things to be aware of if you have or are considering a Business Overhead Expense policy. These policies are not all identical, and they are updated frequently. Your policy may or may not include the provisions mentioned above. If you are considering filing a disability claim, you should consult with an experienced disability insurance attorney to learn more about your policy and any potential issues related to your particular claim.