Business Expense Insurance for Self-Employed Practitioners

Published: August 16, 2018

Owning and operating a business comes with many responsibilities, and while it can be a rewarding and satisfying experience, there’s always something to worry about.

Because you want to protect your business against any possible threats, you take out insurance against such potential risks, for example, employee coverage, insurance against theft, fire and general liability insurance. However, have you ever thought about what might happen to your business if you got sick or injured and could not work for months on end?

Business expense insurance, also known as business overhead insurance, can help protect the business you’ve worked so hard to build.

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What is business expense insurance?

Business Expenses Insurance is specially designed for self-employed individuals; including business owners, partners and shareholders, who are employed full-time in the business. If you cannot work due to an accident or sickness, business overhead insurance pays a monthly benefit, generally for a maximum of one year, to help cover the cost of fixed business expenses, like office rent and utility bills.

The person/s insured are business owners who are responsible for covering the business's expenses.

Business overhead insurance definition

Generally, an insurer will reimburse the business for costs not directly related to the manufacturing of a product or delivery of a service, if you are disabled due to an injury or sickness and therefore unable to work. This benefit covers business expenses, less any amount reimbursed from elsewhere.

A business expenses plan is usually only available as a stand-alone benefit or as an optional extra purchased with an income protection benefit.

Eligibility criteria:

To be eligible for this benefit, you generally need to be able to demonstrate the following:

  • Be in an insurable occupation
  • Be either sole trader, in a partnership, or be a working director
  • Be responsible for paying the business's expenses

Is it worthwhile having business overhead insurance?

Business expense insurance isn’t mandatory. If you have enough savings and financial resources to sustain your business while recovering from an illness or injury, you might not need this type of cover. However, if not, then it’s worth considering if you are a:

  • Sole trader
  • Small business owner
  • Professional or consultant relying on services provided to generate cash flow.
  • Partnership with 5 or fewer partners

Overview of business overhead expense insurance

Monthly Benefit Generally, you can apply for a benefit of up to $90,000 per month, depending on the insurer and your occupation.
Waiting Period Depending on your insurer and occupational category, your choice waiting period will be 14,30, 60 or 90 days. A more extended waiting period generally equates to more affordable premiums.
Benefit Period Usually up to 12 months, as long as you meet the definition of total disablement. The longer your chosen benefit period, the more expensive your premiums will usually be.
Premium Cost The amount you’ll pay for your premium is usually dependent on your:
  • Age and gender.
  • The type of work you do.
  • Overall health, including your smoking status.
  • Choice of waiting and benefit period.
  • Choice of premium structure; stepped level or hybrid.

What does business overhead insurance cover?

Business Expenses Insurance usually covers the fixed costs associated with running your business, including:

  • Business mortgage payments or loan instalments.
  • Office rent.
  • Property rates and taxes.
  • Leasing costs of equipment and vehicles.
  • Maintenance and repairs.
  • Security costs.
  • Accounting and auditing fees.
  • Regular advertising costs, postage, printing and stationery.
  • Salaries of employees who do not generate an income for your business. For example, a receptionist and administrative staff. As well as other related costs like payroll tax and superannuation contributions.
  • Utility bills, for example, electricity, water, heating, gas, telephone and cleaning costs.
  • Bank charges and interest on business loans.
  • Other business-related insurance premiums.
  • Net costs associated with employing a locum to maintain the business when you’re unable to.
  • Membership fees, publications and subscriptions to professional bodies.

Review your product disclosure statement for a full list of expenses covered by your policy.

Should I have income protection or business expense insurance?

While both income protection and business expense insurance provide a monthly benefit if you're unable to work because of an injury or illness, what they cover differs. Income protection insurance covers your personal and family living expenses and is usually calculated on a percentage of your personal income. Business overhead insurance is based on your business turnover and expenses and covers the fixed costs of your business.

Case Study: Eric’s Electric Service

Eric runs a very successful electrician business. Unfortunately, Eric got into a car accident that fractured his skull and both collarbones. Eric's income protection policy provided him 75% of his regular income to cover his daily living expenses. However, as a sole trader, his electrician business would go under if he couldn't work to pay his utility bills, truck lease and receptionist. 

Luckily, Eric had the foresight to purchase business overhead expense insurance, which after a 30-day waiting period started to accrue benefits that would cover his fixed business costs.

Review Business Income Protection Options

Benefits of business expense insurance

Some business expense policies might offer unique benefits you can add for an additional fee to better tailor cover to suit your circumstances.  The benefits below typically form part of your policy. However, please read the full terms and conditions in your policy document.

Total Disablement

If you are totally disabled, as per the insurer’s definition, for longer than your selected waiting period, the life insurance company pays a monthly benefit (paid in arrears) from the end of your waiting period until the end of the benefit period as long as you remain disabled.

Partial Disablement

Your insurer will generally pay a partial benefit if you:

  • Have been continuously disabled (totally or partially) for the waiting period;
  • Have been continuously disabled (totally or partially) since the end of the waiting period; and
  • Are now partially disabled.

If you are partially disabled longer than your selected waiting period, the insurer will pay you a monthly benefit from the end of the waiting period until the end of the benefit period as long as you remain partially disabled.

Business expense insurance benefit period

  • Usually, the benefit period for business overhead cover is up to 12 months. However, exactly how long your business will receive the monthly benefit depends on the insurer and policy you choose. Generally, 12 months is seen as enough time to either recover from your illness or injury or to sell the business if the disability is permanent.

Premium waiver

  • Life insurance companies will typically waive premiums from the start of your waiting period to the end of your benefit period. Any premiums paid during the waiting period will generally be refunded with your first benefit payment.

Benefit indexation

  • Your monthly benefit will automatically increase every year to keep up with inflation. However, you can contact your insurer to opt-out of indexation.

Day 1 accident benefit

  • For an additional cost, the insurer will pay monthly in arrears 1/30 of your insured monthly benefit (for up to 30 days) if you are totally disabled, as per the insurer's definition, for the selected qualifying period from when an accidental injury occurs.

What’s not covered by business overhead expense insurance?

  • Remuneration for the business owner.
  • Salaries for income generating employees.
  • Commissions or bonuses payable to yourself.
  • Repayments of principal of any loan or other finance agreement.
  • Any costs of a capital nature including the cost of any books, equipment, fittings, fixtures, furniture goods, implements, merchandise or stock.
  • Depreciation on real estate.
  • Losses on investments.
  • Fines and taxes.

Companies offering business expense insurance in Australia

Some of Australia's leading companies providing business overhead expense insurance includes:

Before you apply for a business expense policy, be sure to shop around and compare benefits and premiums from a variety of leading life insurance companies in Australia. You might want to use a life insurance broker to help you determine how much cover you need.

FAQs about business income protection

Is business expense insurance tax deductible?

The premiums paid for business overhead insurance are generally tax deductible because it is viewed as a business expense. However, since benefit payments are considered income, the monthly benefits from the insurer to your business can be subject to tax.

What is business income insurance?

Business income protection insurance is a term some self-employed Australians use to describe the type of coverage they need to protect their business's earning potential if they, as the business owner, sole trader or partner, should be unable to work because of an illness or injury. Generally, business income protection refers to either business expense insurance or keyman insurance.

Who owns the business overhead insurance policy?

The policy is owned by the business entity (i.e. partnership or company) with the business owner as the life insured. Depending on the insurer, there may be a minimum and a maximum number of business owners who can jointly purchase a policy at the same time.

Do I need business expense insurance if I’m a sole trader?

As a sole trader, you are wholly responsible for paying the fixed expenses of your business. If you're not able to work, your company might collapse under the weight of those expenses. Business overhead cover help protects you from such a loss. 

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