The need for a Business Overhead Expense Plan hits home when businessowners are asked one very simple question, "How would your business or practice maintain its revenues and continue to pay operating expenses during a period of disability?" Other sources of funds are available, but how dependable are they really?

• Retained earnings — Assuming five percent of earnings are retained annually, it will take 20 years to accumulate just one year's revenues.
• Personal disability income benefits — But what will be left over for the person's family?
• Borrowing — Banks lend money only to those with the ability to repay, and ability to repay is judged mainly by a person's income, not assets. A second mortgage on the person's home may be possible, but business or personal loans create even more debt that must be repaid, with interest.
• Spouse working in the business — Unless the spouse is working in the business now, he or she may have a hard time stepping in. Questions of licensing, training and experience aside, will the employees and other business associates accept the change?
• Selling assets — Assuming a market exists and there are no outstanding loans against them, a forced sale of assets sharply discounts the value of whatever is being sold.
• Hiring a replacement — At what price? And even if a competent replacement can be found and trained soon enough, could the business afford to pay for the same job twice?
• Accounts receivable — How long will they continue? A disabled owner may also find collecting revenues difficult. How many people will pay their bills to a company that may be closing?
• Business associates can pick up the slack — Even if they have the necessary knowledge and skills, how long can they handle the extra work? How will they be compensated? With concerns about the owner's recovery, will the employees be out looking for other jobs?

The solution that makes the most sense is an insured plan to pay business overhead expenses if the principal becomes disabled.

BOE coverage is designed to reimburse the owners of a small business (sole proprietors, partners and closely held corporations) for expenses resulting from an accident or sickness. To qualify for coverage, the business must not be operated from the home.

Moreover, the principal must devote full-time service to the business or practice to qualify and must be personally liable for the covered expenses. If the business is a corporation, benefits must be assigned. If the business is shared, only the insured's pro rata share of the expenses will be covered.

A Business Overhead Expense plan is the only guaranteed source of money in the event of a serious illness or injury. But that's not all:

• A BOE plan provides cash at the exact time it's needed.
• Premiums are fully tax deductible as a business expense. Although benefits are taxable as income, actual business expenses are deductible, which, in effect makes BOE benefits tax-free.
• The plan protects the owner's personal and business credit.

If the disability is permanent, the insured is given time to sell the business as a going concern and is not forced to sell at a loss.

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