Let’s say you have taken the significant step and protected yourself, your family and your business with some form of a salary continuation plan in the event of a short or long term disability. However, what about the many professional expenses that would be needed to be paid during an extended disability? I’m specifically referring to your Business Overhead Expenses. Oopps! I never even thought about that! This is a critical area that should be considered because this one area alone could derail your Business Succession Plan.
These expenses include, but not limited to, staff salaries, rent or mortgage payments, utilities, phone, and other office related expenses. Your Gross Income would normally pay these expenses but that income would decrease or even disappear in the event of a disability. To deal with these obligations, you could temporarily shut-down your business. Unfortunately you could lose staff and worse lose the goodwill you spent years in building your clientele. Or possibly you could dip into the working capital or take out loans to cover these overhead business expenses. Both recourses are pretty dismal. There is, fortunately, another solution.
This solution is easier and more cost-effective. It’s an inexpensive strand of Disability Insurance and it’s aptly called, Overhead Expense Policy (OEP). As you can imagine, this policy provides reimbursement for the expenses in operating your business if you are disabled and cannot work.
This Insurance is a tax-deductible business expense. You should consult your tax advisor for pertinent information. If you receive these benefits in the form of a monthly benefit, monies received are taxable. Nevertheless these expenses are tax-deductible so the net result is a wash.
The policy would work along the following lines. You would first state what your monthly indemnity benefit would be. For illustration, let’s say you would need $10,000 Monthly benefit. Your premium would be approximately one-half of one percent. It truly is very cost effective. At the very least consider it, get some quotes and discuss how you could afford it with your tax advisor.