Disability Insurance Insights...
The Risks Beyond Personal DI Insurance
W. Harold Petersen
June 2013

The International DI Society’s western division study group met via telephone conference to discuss risks beyond personal insurance. Study group leader Greg Nelson, Strategic Benefit Coach, Sandy, UT, was unable to fully participate in the meeting, so he was aptly represented by former International DI Society President Rick Cardero, Principal Financial. It was a fast-moving and practical meeting for all participants, and the chosen subject for the group’s discussion was “Why Overhead Expense?”

A business overhead expense (BOE) policy is, by its design, a low cost item and is considered to be temporary coverage. Unfortunately, the low premium (due to the product’s short term benefit) does not highly stimulate commissioned purveyors. Yet the group’s discussion quickly painted a “word picture” of how very important and vital this coverage is in a financial disability plan.

With BOE insurance, a business owner is reimbursed for expenses during a disability, which enables him to return to a sound business without robbing his family of the benefits provided by his personal DI policy. Nor is the owner forced to sell his business or turn down customer requests.

There is a decided tax advantage provided by BOE insurance. The premiums are tax deductible and even though the benefits must be reported as income, the actual business expenses are deductible (Revenue Ruling 55-264, 1955-1 C.B. 11).

Who Needs BOE DI? Business owners and self-employed individuals, because they face the dual problem of protecting their homes and familie, as well as their businesses.

Are there alternatives to not having insurance? Yes:

 • Accounts payable can be used to pay expenses.

 • Partners may be asked for money to cover expenses.

 • Employees can run the business.

 • Personal disability insurance can be used, as can personal savings.

 • A professional replacement can be hired.

 • Money can be borrowed.

 • The business can be temporarily closed.

 • The business can be sold.

If such options are not viable, then business owners absolutely need BOE!

What overhead expenses may be covered: lease or mortgage payments; utilities; employee salaries and benefits; furniture and equipment leasing or  purchasing; accounting, billing and collection fees; janitorial, security and maintenance; premiums for malpractice, property and disability insurance; professional dues and subscriptions.

What may not be covered: owners salary and benefits; any person sharing business expenses with the insured; any member of the insured’s profession; any person hired to perform the insured’s duties; any person responsible for generation of income for the business; any member of the insured’s immediate family who was not a full-time employee prior to the disability; the cost of goods, merchandise, products or services; depreciation; moving expenses;  parking fees.

These many points of concern indicate more coverage is needed to fully cover a business owner’s exposure to loss due to disability, and a discussion about key person insurance will create another interesting topic of conversation.

We are pleased that the International DI Society is supporting and encouraging such telephone discussions. It is realistic to believe video conferencing will soon follow.

Broker World readers’ support of Disability Insurance Awareness Month and the annual October IDIS conferences will help us continue to lift to prominence the hazard of disability so that the need for coverage is acted upon before our client’s turn comes. 

Author's Bio
W. Harold Petersen, RHU, DFP
RHU, DFP, is founder and chairperson of Petersen International Underwriters. He is recognized as an expert in underwriting development and policy innovation for such products as high-limit disability insurance, residual disability benefits, cash-value DI, and the expanding field of disability financial planning. The life/disability industry has acknowledged his leadership as an author, educator, motivator and leader, and has bestowed upon him the Harold R. Gordon Memorial Award (NAHU), the Will G. Farrell Award (NAIFA Los Angeles), the Lifetime Achievement Award (IDIS) and the Distinguished Service Award (NAIFA CA). His extensive industry involvement includes NAIFA, LIMRA, NAHU and The American College, all on local, state and national levels as well as IDIS. Petersen can be reached at Petersen International Underwriters, 23929 Valencia Boulevard, Valencia, CA 91355. Telephone: 800-345-8816. Email: whp@piu.org.

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