What is not covered under business overhead expense insurance?

The business owner's salary (or personal income/compensation) is typically not reimbursable under a Business Overhead Expense (BOE) policy.

Explanation

• ❌ Business owner's salary: BOE insurance is strictly designed to keep the business operational by covering actual operating costs. It treats the owner's salary as a variable profit distribution rather than an overhead expense. To protect personal income or household expenses, a business owner needs a Personal Disability Insurance policy instead.

Covered Expenses

A standard BOE policy covers fixed, ongoing expenses required to run the company while the owner is disabled:

• ✅ Employee wages & payroll for support staff
• ✅ Rent or mortgage payments for the office space
• ✅ Utilities (electricity, internet, water)
• ✅ Property taxes and business insurance premiums (e.g., malpractice or liability insurance)
• ✅ Equipment leases and professional service fees

Direct costs—expenses tied directly to creating a product or delivering a service—are not included in overhead.

Expenses that are excluded from overhead fall into categories known as direct costs or the Cost of Goods Sold (COGS). Because overhead covers indirect, ongoing business costs, anything traceable straight to production is left out.

Excluded Expenses

• Direct materials: Raw materials, parts, or ingredients used directly to make a specific product.
• Direct labor: Wages and benefits for workers who directly build, manufacture, or assemble goods (such as factory assembly workers or a restaurant chef).
• Direct expenses: Shipping fees, equipment leases, or subcontractor costs tied exclusively to fulfilling a single client contract or specific project.
• Losses and damages: Unusual or extraordinary losses—such as flood or fire damage—are treated as non-operating losses rather than standard overhead charges.

A Business Overhead Expense (BOE) policy covers essential, fixed operating costs to keep a company running if the owner or a key person becomes disabled and cannot work.

What a BOE Policy Covers

• Employee Compensation: Employee wages, salaries, payroll taxes, and benefit contributions.
• Real Estate Costs: Office rent, mortgage interest, and property taxes.
• Utilities: Electricity, phone, heat, water, and gas.
• Business Insurance: Property, liability, malpractice, and workers' compensation premiums.
• Equipment and Maintenance: Equipment rental, lease payments, depreciation, janitorial, and laundry services.
• Professional Fees: Accounting, legal fees, licensing fees, and trade association dues.
• Existing Debt: Interest payments on existing business loans or debt.

What a BOE Policy Does Not Cover

• The disabled business owner’s personal salary, profit, or income.
• The cost of new equipment or business expansion.
• Cost of goods sold (inventory).

The statement regarding Business Overhead Expense (BOE) policies that is NOT true is: "Benefits are usually limited to six months."

Explanation of Why This Statement is Incorrect

Business Overhead Expense policies typically feature benefit periods that last significantly longer than six months—most commonly 12 to 24 months. Because these policies are designed to keep a small business operational while the owner recovers from a disability, a short six-month window is usually insufficient to cover long-term recovery or business transition needs.

Why Other Common BOE Statements Are Correct

If your multiple-choice question includes any of the options below, they are TRUE statements:

• ❌ "Premiums paid for BOE are tax-deductible." This is true because the IRS treats BOE premiums as a standard, ordinary business expense.
• ❌ "Any benefits received are taxable to the business." This is true; however, because the benefit funds are immediately spent on deductible business expenses (like rent or payroll), the tax burden usually offsets itself.
• ❌ "Leased equipment, utilities, rent, and employee payroll are covered." This is true. The policy is intended to fund regular, fixed operational costs to keep the storefront open.
• ❌ "The owner's salary or profit loss is not covered." This is true. BOE explicitly excludes the disabled owner's personal income or salary replacement.

An insurance exclusion is a specific provision in a policy that states what risks, events, or services are not covered.

Common Homeowners Insurance Exclusions

• Floods and Earthquakes: Standard home policies exclude ground-level water damage from floods and earth movement like earthquakes. You need separate policies for these.
• Wear and Tear: Damage from ordinary aging, rust, or general maintenance issues is not covered.
• Pests and Vermin: Infestations of termites, rodents, or insects are considered preventable and are excluded.
• Intentional Loss: Damage caused on purpose by the policyholder will not be paid out.

Common Health Insurance Exclusions

• Cosmetic Surgery: Elective procedures done purely to change appearance are usually excluded.
• Alternative Therapies: Treatments like acupuncture, naturopathy, or unapproved experimental therapies are often not covered.
• Dental and Vision Care: Standard health insurance plans frequently omit routine dental work and eye exams for adults.
• Fertility Treatments: Procedures such as in-vitro fertilization (IVF) are commonly excluded.

Common Auto Insurance Exclusions

• Intentional Damage: Deliberate crashes or damage caused by the driver are excluded.
• Commercial Use: Driving your personal car for business delivery or ridesharing is typically not covered without a special rider.
• Normal Wear and Tire: Mechanical breakdowns and tire wear are excluded.