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Business Overhead Expense in a Disability Income Policy?

Author: Dick Hartzen

A business owner may be surprised to learn that a small loss to business property ends up with a much larger loss of income. That problem may be solved with a Business Interruption type of coverage. What is often overlooked is the problem that occurs when the business owner is disabled for a short time.

 

A business owner may be surprised to learn that a small loss to business property ends up with a much larger loss of income. Waiting weeks for repairs can interrupt the required flow of business income. That problem may be solved with a Business Interruption type of coverage.

What is often overlooked is the problem that occurs when the business owner is disabled for a short time. Imagine the doctor, lawyer, accountant, insurance agent or other business owner that is unable to do his/her job. This may lead to dire circumstances.

Figures released from a major disability insurer point out:

Probability of a Disability lasting at least 90 days between the age shown in the table and age 65 –

Age   Male     Female
25    20.2%    29.9%
30    19.6%    28.6%
35    19.0%    27.0%
50    15.4%    18.1%

The Internal Revenue Service has issued Revenue Rule 55-26, 1955-2 CB11 to help eliminate this problem. A tax deduction is allowed as a business expense for a disability income policy that may cover:

  • Lease, rent & mortgage payments on business premises

  • Rental, mortgage or realty taxes

  • Employees salaries

  • Utilities

  • Installment payments for furniture and equipment

  • Premiums for business insurance

  • Accounting, billing and collection fees

  • Professional or trade dues or subscriptions

  • Postage

  • Business laundry

  • Janitorial and maintenance services.

The normal period of benefits provided is for 2 years or less. If a business owner is still disabled after that time, there is a little likelihood that it will be reopened in the future. The premiums are very reasonable due to the short term of coverage .

Professionals are an excellent market for these policies. The  definition of disability is of major importance. “Own-occupation is a must along with a “residual disability rider”. The “own-occupation” rider eliminates the insured from having to worry about his/her previous training or education. The “residual disability rider” increases the amount of income that can be earned and allow benefits to continue.

Copyright 2010 by Richard I Hartzen. Used with permission.

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​127 South Peyton Street
Alexandria VA 22314
​phone: 800.221.7917
fax: 703.683.7556
email: info@iiaba.net

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