Small and closely held businesses often depend on key individuals for their very existence. The death of a key person can be insured against by a key man policy. But, if the owner or a partner becomes disabled, the loss of income to the firm could destroy the business. The U. S. Census Bureau states 1 in 5 small businesses will suffer a disruption caused by the permanent or partial disability of a key professional.
Individual disability policies provide income to the disabled partner or owner. But, what about a key secretary, nurse, paralegal or similar employee's salary? What about the business mortgage or outstanding loan obligations, utilities, licensing, franchise payments and any other myriad of overhead expenses? Even if the owner or partner has a disability policy, if that owner or partner is not producing income for the business and fixed expenses remain, there may be no business for the owner or partner to come back to.
A professional overhead expense disability policy is designed to cover those expenses. The policy provides payments up to the monthly benefit for qualified "overhead" expenses. A typical professional overhead expense policy will cover qualified employee salaries, such as key staff. It typically will not pay the salaries of other professionals or partners in the business; but, it will cover the cost of a replacement professional to fill the disabled professional's position temporarily. Other covered expenses include:
- Rent
- Principal and Interest on Debts
- Mortgage Payments
- Monthly Average Taxes
- Utilities
- Postage and Incidental Costs
- Equipment Maintenance
This coverage is affordable. Rates can run from $50 to $100 per month for coverage up to $10,000 per month in case of disability. The premiums are based on health, lifestyle, and age factors. The premiums are tax deductible as a business expense.
There are key things one must have in this policy and the business owner should not purchase a cheap policy. Purchase only from a quality insurer with a high financial rating and customer satisfaction rating. Look for the following in the policy:
- Coverage for Partial Disability - Make sure the policy has residual benefits or a residual rider to cover partial disability. Some policies cover only total disability and are, in effect, worthless.
- The Ability to Purchase More Coverage - Expenses may grow while the professional's insurability (age and health) declines. Look for a future purchase option.
- A Carry-Over Provision - If you have variable expenses that fluctuate, you will want carry-over coverage that will allow you to take unspent benefits from one month into the next.
