What is the purpose of a business overhead expense (BOE) disability policy?

Why A is correct

A business overhead expense policy pays the continuing fixed expenses of a business, such as rent, utilities, and the salaries of non-owner employees, during a period when the owner-operator is disabled and cannot run the business. Its purpose is to keep the business viable until the owner recovers, so the business does not collapse or have to be sold while the owner is unable to work. Benefits are typically capped at a monthly amount and limited to a set number of months, and they are paid to the business rather than to the owner personally.

Why the other options are wrong

• B) Replacing the owner's lost personal income is the function of an individual disability income policy, which pays the disabled owner directly. A BOE policy instead pays the business's fixed overhead, not the owner's take-home income.
• C) BOE policies are disability products that protect a living owner's business. Death benefits for the owner's family are the function of life insurance, not a business overhead expense policy.
• D) Funding the purchase of a disabled owner's business interest is the purpose of a disability buy-out or buy-sell policy. BOE policies cover operating expenses and do not transfer ownership.

Memory hook

BOE keeps the lights on: rent and staff paid while the owner is out.