Disability Overhead Expense

Disability overhead expense insurance is an insurance policy designed to provide coverage for the overhead expenses of businesses should a key person be disabled and unable to work. This insurance is important for businesses that rely on the contributions of key personnel to keep operations running smoothly. In the event of a disability, disability overhead expense insurance can provide a business with the financial assistance it needs to keep running and to maintain its ongoing operations until the disabled individual is able to return to work.

Disability overhead expense insurance is intended to supplement regular disability insurance policies, which provide an individual with an income if they are unable to work due to disability. While disability insurance policies can help an individual to cover their personal expenses, disability overhead expense insurance is intended to help businesses cover their overhead costs, such as rent, utilities, and taxes, in the event of a disability.


The coverage provided under disability overhead expense insurance is typically set up to cover a specific amount of time, usually up to two years. The insurer will pay a monthly benefit to the business to cover overhead expenses. The benefit amount can vary depending on the policy. Generally, the benefits can range from around 10 to 50 percent of the business’ monthly overhead expenses, with the actual amount dependent on the insurer and the specific policy.

It is important for businesses to bear in mind that disability overhead expense insurance does not replace the revenue lost when a key employee is disabled. Rather, it is intended to help cover the ongoing overhead expenses of a business during a period of time when the business is unable to generate revenue due to the disability of a key person.

Purchasing Disability Insurance

When purchasing disability overhead expense insurance, businesses should be aware of a range of factors that may impact the cost and terms of coverage. These factors include the age of the key employee, the type and amount of overhead expenses, the duration of the policy, and the amount of benefit that the policy will provide. It is also important to note that this type of insurance is typically only provided for businesses that have been in operation for at least two years.

Disability overhead expense insurance is an important type of insurance for businesses to consider purchasing, particularly those that rely heavily on the contributions of key personnel to keep their operations running. This insurance can help a business to cover its overhead expenses in the event of a disability, providing financial assistance during a challenging time.

Finally, the premium is deductible (Rev. Rul, 55-264, 1955-1 CB 11) Be aware the benefit is reportable as income.  However, the overhead expenses which are deductible as ordinary business expenses will, to the extent of deductible, offset the reportable benefits.

Frequently Asked Questions (FAQs) about Disability Insurance

What is the elimination period in disability insurance?

The elimination period refers to the waiting time between the onset of a disabling condition and when you start receiving benefits from your disability insurance policy. This period can range from 30 days to one year, depending on your policy’s terms. During this waiting period, you will need to rely on other sources of income or savings to cover your expenses.

Can I purchase disability insurance if I have a pre-existing condition?

It depends on the specific details of your pre-existing condition. Some policies may exclude coverage for certain conditions, while others may require higher premiums or offer limited coverage for those with pre-existing conditions. It’s important to review each policy carefully and disclose any relevant medical history during the application process.

How much does disability insurance cost?

The cost of disability insurance varies based on several factors, including age, occupation, health status, and desired benefit amount. On average, most people pay between 1% and 3% of their annual income for disability insurance coverage. However, it’s important to compare quotes from multiple providers before making a decision as rates can vary significantly between companies.

What is disability insurance?

Disability insurance is a type of insurance that provides income protection to individuals who are unable to work due to illness or injury.

Who can benefit from disability insurance?

Anyone who relies on their income can benefit from disability insurance, including self-employed individuals, business owners, and employees.

How does disability insurance work?

Disability insurance provides a monthly income to policyholders who are unable to work due to an illness or injury. The policyholder must qualify for benefits by meeting the definition of disability outlined in the policy.

What is the definition of disability?

The definition of disability varies by policy, but it typically means that the policyholder is unable to perform the duties of their occupation due to an illness or injury.

Are there different types of disability insurance?

Yes, there are two main types of disability insurance: short-term disability insurance and long-term disability insurance. Short-term disability insurance typically provides benefits for up to six months, while long-term disability insurance provides benefits for a longer period of time.

How much disability insurance coverage do I need?

The amount of disability insurance coverage you need depends on a variety of factors, including your income, expenses, and lifestyle. It is important to work with a financial advisor to determine the appropriate amount of coverage for your specific situation.

What factors should I consider when choosing disability insurance?

When choosing disability insurance, you should consider the amount of coverage, the definition of disability, the waiting period, the length of coverage, and the cost of the policy.

Can I purchase disability insurance on my own, or do I need to get it through my employer?

Both options are available. You can purchase disability insurance on your own, or you can obtain coverage through your employer.

Is disability insurance expensive?

The cost of disability insurance varies based on the amount of coverage, the definition of disability, and other factors. However, disability insurance is typically less expensive than other types of insurance, such as life insurance.

Can I change my disability insurance policy if my needs change?

Yes, you can change your disability insurance policy if your needs change. It is important to review your coverage regularly and make adjustments as necessary.