What Is Disability Overhead Expense Insurance?

Jon Byman
May 30, 2019

Disability overhead expense insurance helps your business meet expenses if you – the owner – become disabled. Photo credit: Hero Images / Getty Images

You probably know that disability income insurance protects your income if you should become disabled and can’t work. But if you’re a business owner, how will you continue to pay the expenses of the business — over and above what you take home — if you’re sidelined by a disability? That’s what disability overhead expense insurance is for.

WHAT IS DISABILITY OVERHEAD EXPENSE INSURANCE?

Disability overhead expense insurance, also known as business overhead expense insurance, pays a benefit to your business should you — the owner — become disabled and can’t work. The business can use the money to meet its day-to-day expenses such as paying salaries and utility bills. It’s a way to cover your expenses should you be unable to earn the income that supports the business.

WHY DOES MY BUSINESS NEED DISABILITY OVERHEAD EXPENSE INSURANCE?

Disability is more common than you might think. According to the Social Security Administration, there’s a 25 percent chance that a 20-year-old today will become disabled at some point. If you are a primary revenue generator for your business, what would happen if you couldn’t work? Would you be able to cover your expenses? Would you have to sell your business quickly (potentially for less than it’s worth)? Would you have to close the business? Disability overhead expense insurance gives you time to cover the bills while you recover. With your expenses covered, you have time and the peace of mind to deeply consider the next steps for your business.

WHAT KIND OF BUSINESSES PURCHASE DISABILITY OVERHEAD EXPENSE INSURANCE?

Disability overhead expense insurance typically covers small businesses that can demonstrate regular expenses that would be covered by a policy. These include anything that would be a normal and customary expense in the continuing operation of your business. Small medical practices, law, accounting or architecture firms are just some examples of businesses that would typically get disability overhead expense insurance. You, or any other owners covered by a policy, need to be working in your business for at least 30 hours each week. You also will need to demonstrate a track record of regular expenses.

HOW LONG DOES COVERAGE LAST?

Once you’re insured, you can typically keep a disability overhead expense insurance policy in place until you’re 65. Some insurers allow you to extend coverage beyond age 65, if you meet certain criteria. Policies typically have a 12- or 24-month benefit period. Some policies will pay even longer up to something known as an aggregate benefit amount — which is the total amount your policy will cover for a disability.

WHAT ELSE SHOULD I KNOW ABOUT DISABILITY OVERHEAD EXPENSE INSURANCE?

Premiums for disability overhead expense insurance are tax deductible. To get disability overhead expense insurance coverage, your business can employ no more than 10 professionals (doctors, dentists, engineers). If you have another type of business, like retail or a small manufacturing company, you can’t employ more than 20 people.

If you think disability overhead expense might be right for your business, a financial advisor can discuss options for coverage with you.

To be used with form ICC16.TT.DOE.(0916), ICC16.TT.DOE.APB.(0916), ICC16.TT.DOE.FIB.(0916) or state equivalent. Not all contracts and optional benefits are available in all states. Disability insurance policies contain some features and benefits that may not be available in all states. The ability to perform the substantial and material duties of your occupation is only one of the factors that determine eligibility for disability benefits. These policies also contain exclusions, limitations and reduction-of-benefits provisions. Eligibility for disability income insurance, additional policy benefits, and qualification for benefits, is determined on a case-by-case basis. For costs and complete details of coverage, contact your Northwestern Mutual Financial Representative.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life insurance, disability insurance, annuities, and life insurance with long-term care benefits)

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