Overhead Expense (OE)

Overhead Expense provides benefits to reimburse many normal and customary fixed monthly business expenses during a business owner's disability.

Why Overhead Expense (OE):

As a professional services business owner would you be able to pay your employees, utilities, liability insurance, and other business expenses in addition to paying your own bills if you became too hurt or sick to work?  Even if you have adequate group long term disability & individual disability protection, you may have just enough to pay your living expenses.  This means that you won't be able to keep your business going for very long if at all.  Since you are a successful business owner, your business has value and is part of your net worth.  However, if your business falls apart shortly after a period of disability, how much would it be worth then?  There are two main reasons why you want to own OE:

1. If You ARE Going to Recover:  OE reimburses your covered business expenses during a disability to keep your business going while you recover so you can come back to a fully functional business.
   
   
2. If You ARE NOT Going to Recover:  OE reimburses covered business expenses during a disability to keep your business going and functional, so you can sell your business for the full market value.   

In both of the above scenarios, the Professional Replacement Endorsement, issued on most policies covers 50% of the salary for your replacement in your own profession up to $10,000 month to help service your patients and clients when you are on claim.

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How Overhead Expense (OE) Works:

In the event of disability, policy owners are reimbursed up to 100% of covered business expenses each month, up to a maximum monthly overhead expense benefit amount specified in the policy.  Any unused monthly benefit may be carried forward and may be used towards covering subsequent months where the monthly expenses exceeded the monthly maximum or may extend the benefit period for a period of no more than 12 additional months.

The covered expenses are all the normal, necessary and customary expenses incurred to run your business including but not limited to:

• loan payments
• rent
• utilities such as: Electric, telephone, heat, water
• salaries and employer-paid benefits of employees who have no ownership interest in your business and who are not members of your profession
• business insurance such as: property, liability and malpractice 
• health insurance  
• real estate taxes
• interest on business debt
• depreciation
• janitorial, maintenance, & laundry services
• legal and professional services
• professional, trade and association dues
• licensing fees
• billing and collection fees

The premiums for your OE policy are fully tax deductible as a normal business expense.  The benefits are technically taxable but since they are reimbursing you for business expenses you paid, the net result is a wash with no taxation of benefits*.

With an OE policy you have three choices for waiting periods:  30, 60 & 90 days.  You also have three benefit period options: 12, 18 & 24 months.  We usually recommend a 30 day wait and a 1 year benefit period.

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Overhead Expense (OE) Policy Features^1,2:

• Non-Cancellable and Guaranteed Renewable to Age 65:  As long as your premiums are paid the policy will remain in force until age 65.  additionally no policy rates or language can be changed.  After age 65, as long as you are working full time 10 month a year and are responsible for business expenses, you can continue coverage under the renewal conditions of the policy.
  
  
• Own Occupation Definition of Disability:  You are considered totally disabled if, due to injury or sickness, you are not able to perform the material and substantial duties of your occupation.
  
  
• Professional Replacement Endorsement:  With this endorsement on your policy, the policy may provide up to 50% to pay the salary of a replacement in your profession not to exceed one half of the Maximum Monthly Overhead Expense Benefit or $10,000, whichever is less.  Note: this endorsement is included on most issued policies but not on all policies.
  
  
• Accelerated Benefit Endorsement:  This exceptional hard to find feature helps you with cash flow during a claim.  In the event of total disability, once you have satisfied the elimination period, one half of the maximum first monthly overhead expense benefit is paid before requiring proof of covered expenses. Yes you receive your first policy benefit check days after satisfying your elimination period, not months.  Most companies do not have this feature which means you must wait until after the end of a covered month to submit documentation for policy benefits in all situations. With this feature the amount is paid only one time in the same claim.  Note: this endorsement is included on most issued policies but not on all policies.
  
  
• OE Residual Disability Benefit Feature:  Not all disabilities are total.  The OE policy offered by Guardian has a residual (partial) feature built in so even when you are still working but have a 15% loss of revenue plus loss of time and/or duties because of a sickness or injury, benefits may be paid to help keep your business out of the red. 
  
  
• Ability to Carry Forward Unused Benefits (Extension of Benefits Feature): Benefits for either a residual or total disability may continue beyond the end of the benefit period, for a period of no more than 12 additional months, if the Maximum Aggregate benefit in a single claim has not been paid.
  
   
• Waiver of Premium Benefit:  Premiums are waived during a disability when you are eligible for benefits and for six months following recovery.  Any premium paid that is attributable to the disability period is refunded. 
  
   
• Legal and Accounting Fee Benefit:  Reimbursement for up to $5000 of legal and accounting fees associated with the termination or selling your business due to disability.
  
  
• Conversion Option:  You have the ability to convert an OE policy into an individual disability insurance policy up to age 55, subject to eligibility requirements noted in the specimen policy.
  
  
• Payment Options: Annual, Semi-Annual, Quarterly, Monthly List Bill, and automatic monthly draft.  Modal charges apply to Semi-Annual, Quarterly, & Monthly List Bill  No modal charges for annual or Monthly draft  (annual divided by 12). 

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Overhead Expense (OE) Optional Riders^1,2:

• Future Increase Option (FIO) Rider:  This rider provides the ability to purchase additional coverage without having to prove good health, you will just need to provide financial justification for the increased benefit.  This option can be exercised each year on the policy anniversary date up to age 55 or until the total increase option is used up if sooner.  The total FIO amount issued on a policy can not exceed one times the base monthly benefit and the base plus FIO amount can not exceed the published OE maximums for that benefit period noted below. 
  
  
• Supplemental Overhead Expense (SOE) Benefit Rider:  All OE benefit maximums are based on the average monthly covered expenses.  However, what happens if you become disabled starting in months that are higher than the monthly average?...  Most business owner's business expenses vary month to month.  In these situations your benefit may not be enough to cover the actual expenses.  This unique rider, only available through Guardian², provides an additional pool of benefit equal to an extra month's benefit that can be tapped into any time during the benefit period or during any extension of benefits in the event covered expenses exceed the maximum monthly benefit.
  
  
• Automatic Benefit Enhancement (ABE) Rider: This convenient, no cost rider helps keep your OE insurance benefit aligned with normal, annual business expense increases you might experience when healthy.  It is applied automatically to eligible policies and provides an annual 4% compound benefit increase each year for 5 years, with no financial documentation required.  Each increase will include an additional premium based on your then current age.  You have the option to refuse any of the increases but two consecutive annual refusals will remove this rider from the policy.  Rider eligibility will be determined at the time of underwriting.

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Overhead Expense (OE) Benefits & Tax Advantages*:

The premiums for Overhead Expense are tax deductible as ordinary and necessary business expenses.

Overhead Expense benefits received during your disability are taxable upon receipt: however, they are used to pay business related expenses that are tax deductible, so the net tax impact is neutral. 

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Overhead Expense (OE) Specimen Policy:

Overhead Expense (OE) Specimen Policy 4200

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Overhead Expense Product Page Outline:

Why Overhead Expense (OE)
How Overhead Expense Provided By Guardian (OE) Works
Overhead Expense (OE) Policy Features
     -Non-Cancellable and Guaranteed Renewable
     -Definition of Disability/Own Occupation
     -Professional Replacement Endorsement
     -Accelerated Benefit Endorsement
     -OE Residual Disability Benefit Feature/Overhead Expense Residual
     -Ability to Carry Forward Unused Benefits (Extension of Benefits Feature)
     -Waiver of Premium Benefit
     -Legal and Accounting Fee Benefit
     -Conversion Option
     -Payment Options
Overhead Expense (OE) Optional Riders
     -Future Increase Option (FIO) Rider
     -Supplemental Overhead Expense (SOE) Benefit Rider
     -Automatic Benefit Enhancement (ABE) Rider
OE Benefits & Tax Advantages
Overhead Expense (OE) Specimen Policy
 

*This website is provided for informational purposes only and should not be considered tax or legal advice. Please contact your tax or legal advisor regarding the tax treatment of the policy and policy benefits. You should consult with your own independent tax and legal advisors regarding your particular set of facts and circumstances. The information provided is not intended or written to be used, and cannot be relied upon, to avoid penalties imposed under the Internal Revenue Code or state and local tax law provisions.
1, 2. Optional riders are available for an additional premium.
1, 2. Policy Form 4100 or 4200 underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY.    This policy provides disability insurance only. It does not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. The expected benefit ratio for this policy is 50%. This ratio is the portion of future premiums that the company expects to return as benefits, when averaged over all people with this policy.   Product availability, provisions and features may vary from state to state.