WHAT IS BUSINESS OVERHEAD DISABILITY INCOME? BOE is designed to help a self-employed person whose business would suffer in the case of a disability. BOE reimburses the expenses of the business. Expenses such as: rent utilities insurance premiums lease payments employee salaries phone equipment leases or rentals other expenses that normally would be deductible from income for tax reasons The exception to that list of expenses is this product can not provide any income to the disabled owner or be used to pay for a replacement for an owner. However, if money is available to pay the expenses, any income coming into the business after the disability can be used to pay for things the BOE will not reimburse, such as debt service or mortgage payments. Some disability income companies offer a rider to provide dollars to hire someone to replace an owner. Usually it is offered at 50% of the base BOE benefit. For example, if the maximum BOE monthly benefit were to be $5,000, the replacement salary could be 50% or $2,500. Business Overhead premiums are defined as a business expense and deductible from business income. The benefits are taxable income. However, the expenses the money is used for are deductible. (Rev. Rul. 55-264, 1955-1 C.B. 11) As in all disability income contracts, BOE is paid 30 days in arrears. If the elimination or waiting period is 60 days, then the first check is available after 90 days. The elimination period is similar to a deductible. The first 60 days of expenses must be paid without reimbursement. The 61st day of expenses are eligible. Benefit periods, or how long a monthly benefit is payable for, are 12 months, 18 months or two years. Common elimination periods are 30, 60, 90, 120, 180 and 365 days. What happens if the monthly maximum benefit is not used fully? For example, suppose the monthly maximum is $5,000, yet in one month the expenses are only $4,000? The extra $1,000 is carried forward and added to the end of the contract. BOE works not unlike a bank account. Suppose the benefit period is 12 months with a $5,000 monthly benefit. The total benefit available is 12 X $5,000 or $60,000. It can take longer than 12 months to use up the entire $60,000. However, the most the company will pay out in any given month regardless of the expenses is $5,000. A good BOE contract will also include a residual benefit to provide protection for partial or residual effects of a disability. Only business owners are eligible for BOE. If there is more than one business owner, the the expenses must be split and allocated as per ownership per centage. For example, if two people own a business 60%/40% and the monthly business expenses are $5,000, the one owner would qualify for $3,000 a month of benefit, the second would quailfy for $2,000. To qualify for underwriting, proof of these expenses must be provided in addition to medical evidence. Proof of expenses would include the prior year's business tax return and/or documentation from a third party, such as a CPA.