Safeguarding Your Livelihood: The Differences Between Business Overhead Expense and Individual Disability Insurance

Zack Zettergren, CFP® |
Categories
Insurance Education
Business Protection
Financial Planning
Disability Coverage
Risk Management
Entrepreneurship
Personal Finance
Business Continuity

In the intricate world of insurance, understanding the nuances of the policies designed to protect you and your business is crucial. Two essential types that often cause confusion are Business Overhead Expense Disability Insurance (BOE) and Individual Disability Insurance (IDI). Both serve to safeguard income, but they do so in fundamentally different ways. Let’s demystify these two insurance types to help ensure you and your business have the right coverage.

Business Overhead Expense Disability Insurance (BOE)

BOE is a lifeline for business owners. It's specifically designed to cover the ongoing operating expenses of a business if the owner becomes disabled and unable to work. This insurance ensures that rent, utilities, employee salaries, and even the costs of certain business loans continue to be paid. The goal is to maintain business viability and prevent liquidation or business closure due to the owner's temporary absence.

Individual Disability Insurance (IDI)

IDI, on the other hand, is all about income replacement for an individual. If you’re unable to work due to injury or illness, IDI steps in to replace a portion of your lost earnings. This type of insurance is crucial for both business owners and employed individuals, providing financial stability and peace of mind during recovery.

Key Differences to Consider

Purpose:

  • BOE: Keeps the business afloat by covering operational costs during your disability.
  • IDI: Provides you with a percentage of your personal income when you’re unable to work.

Coverage:

  • BOE: Expenses like rent, utilities, non-owner employee salaries.
  • IDI: A portion of your individual income.

Beneficiary:

  • BOE: The business itself.
  • IDI: You, the individual policyholder.

Duration:

  • BOE: Typically, benefits are for a short term, often 12-24 months.
  • IDI: Benefits can last much longer, sometimes until retirement age, depending on the policy.

Why Both May Be Vital for Business Owners

As a business owner, BOE is critical for keeping your enterprise running, but it won't replace your personal income. That's where IDI comes in. Having both means that while your business expenses are covered, your personal financial needs are also addressed. This dual approach ensures that both you and your business are protected during challenging times