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Protecting your business in case of a disability

Being a business owner can be very rewarding. If you are disabled, though, it can be devastating. Not only is your personal income threatened, but also your business. Some types of businesses would continue without you easily. However, if your business depends on you to generate revenue, you need to own "business overhead expense insurance" to make sure your business remains viable during a period of disability.

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The monthly expenses of your business won't disappear just because you can't work. You still have an obligation to pay certain expenses such as rent, real estate taxes, interest on debts, installment loan costs for furniture and equipment and other fixed expenses. And what about employee payroll, electricity, telephone or heat? In addition, while these expenses continue, revenue may be decreasing as clients or patients leave.

The solution is a type of business insurance called "business overhead expense insurance." This coverage pays for all of the deductible overhead expenses of your business on a reimbursement basis, while you are disabled, for up to 24 months. This gives you the ability to keep your business running while you get better. If you are not able to return to work within 24 months, at least the fixed expenses are paid.

Top reasons for business overhead expense insurance

  • Keep your business viable until you return to work.
  • Provide you with resources until you sell your business (if it's going to be a longer-term disability).
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    Most insurance companies will cover up to $30,000 of fixed monthly expenses. Since these types of policies are "reimbursement policies," the benefits may extend past the maximum benefit period. For example, let's say you purchase $20,000 a month of benefits for 24 months. If you only use $10,000 per month for 24 months, you would still have $240,000 available to use.

    One of the unique features of business overhead expense insurance is the tax-deductibility. While most individual disability insurance policies are not deductible, business overhead expense insurance is. The benefits that you receive are taxable, but because they are used to pay deductible expenses, it is essentially a wash. Ask your tax advisor for more details.

    Most insurance companies offer an option that allows you to pay most or all of the salary of a member of your profession to perform the duties previously performed by you. This is especially important for highly skilled business owners such as physicians, dentists lawyers, etc. If you are unable to work and don't have someone in your profession perform your duties, your business could collapse.

    Being disabled can be one of the most trying times in life. Having to worry about the expenses of running your business can be avoided.

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