Becoming disabled can be especially problematic for those physicians, dentists, and other healthcare professionals who are partners in a medical practice, or who own a small private practice on their own. This is because an individual or group disability policy only covers the doctor’s income – it does not cover business expenses, nor does it cover staff wages. 

Business overhead expense (BOE) insurance is important for these types of non-employee healthcare professionals. Medical practices are, in fact, highly-specialized small businesses. So each practice owner will need a separate BOE insurance policy to protect the business side of the financial equation in the event of a disabling accident or illness. This type of policy will cover all business expenses that are considered ordinary, necessary, and tax-deductible. Such expenses would include the wages of the disabled physician’s nursing staff and medical assistants, as well as regular operating expenses for the practice.

How does business overhead expense insurance work?

BOE insurance is a type of disability insurance. It is available to almost any type of business owner, and it reimburses for most regular business expenses incurred during the owner’s disability after a waiting period is met (usually 30, 60, or 90 days). BOE insurance is primarily used to prevent a medical practice’s shutdown due to the short-term disability of a practice owner or to minimize the incurrence of debt for the practice or its partners while a practice owner is out.

These policies generally do not offer coverage beyond two years for a single disabling event. They are variable in that they will pay out only the actual overhead expenses, up to a maximum amount as established by the policy. So if the maximum monthly benefit is $12,000, but the actual business overhead expenses are only $9,000 in a given month, then the policy will pay out $9,000. The unused $3,000 will then be applied toward future months to increase the maximum monthly benefit. So in this scenario, if monthly expenses were an unusually high $13,000 in a subsequent month, there would be enough money in the “account” to allow for a $13,000 payout instead of only $12,000.

For those physicians who experience a long-term disability and are unsure if they can return to work, BOE insurance is advantageous. It allows the physician up to two years to decide what to do with their practice. Note that for physicians who are in a partnership, these policies will only cover expenses that are paid for by the revenue the disabled physician brings in. To make sure a medical practice is fully covered, each physician in a partnership needs to carry a BOE insurance policy.

What medical practice expenses does business overhead expense insurance cover?

BOE insurance only covers fixed expenses, which are typically the tax-deductible ones. So it would cover things like:

• Monthly rent or mortgage for the business
• Utility costs for the business
• Property insurance
• Malpractice/liability insurance
• Staff wages (both payroll and benefit contributions)
• Office equipment/supplies
• Medical supplies and equipment
• Professional/trade dues
• Professional fees (e.g., accounting, legal)
• Installment payments on business debt
• Interest on business debt
• Janitorial services
• Depreciation (e.g., medical/dental equipment)

It may also cover the salary of a temporary employee who is hired to assist with the workload in the physician’s absence and any payroll or property taxes that come due for the business while the physician is out.

What is excluded from coverage?

BOE insurance will not cover any of the following:

• The physician’s own wages and profit (this is why a robust disability insurance policy is necessary)
• Any wages and profit for other partners in the medical practice
• Any costs that are normally passed on to patients and are therefore covered by a different source
• Additions to the office or medical space that are not considered ordinary and necessary, like new furniture

Are BOE insurance benefits taxed in the same way as disability insurance?

Payments from BOE insurance are subject to income tax even though they are paid by the physician, although the premiums are usually tax-deductible as a business expense. This is different from disability insurance, where the benefit payments are tax-free as long as the physician pays their own premiums.

When recommending coverage amounts for clients, brokers are wise to choose a figure that will cover all business expenses plus leave room for taxes to be withheld. Brokers should also encourage their practice-owning clients to secure a BOE insurance policy as soon as possible because the rates increase with age. Even a small policy is beneficial as a starting point. Physicians can always increase their coverage amounts later on without necessarily having to provide further evidence of medical insurability; be sure to check the policy language or add a rider to make this process as easy as possible.