If you run your own business and become too ill or injured to work, the bills do not stop. Rent is still due, your receptionist still needs to be paid, equipment leases keep running, and your accountant, software and insurance providers still send invoices. For many small business owners, a few months of fixed costs with no revenue can be enough to close a business that took years to build.
Income protection insurance replaces part of your personal income if you cannot work. It is not designed to cover the costs of running your business. Business expenses insurance fills that gap. It pays the fixed overheads of your business while you recover, so you have a business to return to.
This guide explains how business expenses insurance works, what it covers, how it differs from income protection and other business insurance, and who it suits.
How business expenses insurance compares
| Business expenses insurance | Income protection | Key person insurance | Business interruption insurance | |
|---|---|---|---|---|
| What it protects | The business’s fixed operating costs | Your personal income | The business against the loss of an important person | Business income after an insured event such as fire or flood |
| What triggers a claim | Your illness or injury preventing you from working | Your illness or injury preventing you from working | Death, disability or serious illness of the key person | Damage to business property from an insured event |
| How it pays | Monthly reimbursement of actual eligible expenses | Monthly benefit based on your income | Usually a lump sum, sometimes monthly | Based on lost revenue and extra costs |
| Typical benefit period | Usually up to 12 months | Two years, five years or to a set age | Depends on the cover | Set indemnity period |
| Premiums tax deductible? | Generally yes | Generally yes, outside super | Depends on the purpose of the cover | Generally yes |
| Who sells it | Life insurers | Life insurers | Life insurers | General insurers |
What is business expenses insurance?
Business expenses insurance, sometimes called business overheads insurance, pays a monthly benefit to cover the fixed costs of running your business if you are unable to work because of illness or injury. It is designed for self-employed people and small business owners whose business depends on them personally.
The benefit reimburses the actual eligible expenses the business incurs each month, up to the amount insured. It is usually paid for up to 12 months, which is generally long enough for most people to recover and return to work, or to make longer-term decisions about the business, such as selling it or bringing in a replacement.
What expenses it typically covers
Each insurer defines eligible expenses differently, but commonly covered fixed costs include:
- rent or lease payments on business premises,
- salaries of employees who do not directly generate income, such as reception or administration staff, along with their super,
- equipment lease and hire payments,
- utilities such as electricity, gas, water and phone,
- accounting, bookkeeping and legal fees,
- business insurance premiums,
- interest on business loans,
- software subscriptions, professional memberships and registration fees,
- cleaning, security and other regular service contracts, and
- council rates and land tax on business premises.
Some policies also contribute towards the cost of a replacement or locum, which can be particularly valuable for professionals such as doctors, dentists and allied health practitioners.
What it usually doesn’t cover
- Your own income. That is what income protection is for.
- Salaries of income-producing employees, who should be generating revenue to cover their own cost.
- Cost of goods and stock. Variable costs that rise and fall with sales are generally excluded.
- Loan principal repayments. Interest is often covered, but principal is usually not.
- Depreciation. Non-cash accounting costs are not covered.
- Expenses the business did not incur before you became unwell. New costs taken on after the claim began are generally excluded.
A worked example
Sarah runs a physiotherapy clinic as a sole practitioner. She employs a receptionist and leases her rooms and equipment. Her monthly fixed costs are:
- rent: $4,000,
- receptionist salary and super: $4,500,
- equipment leases: $800,
- utilities, software, insurance and accounting: $1,200.
That is $10,500 a month. If Sarah suffers a back injury and cannot treat patients for four months, the clinic faces $42,000 in fixed costs with little or no revenue. Without cover, she would need to fund that from savings, borrow, let her receptionist go, or close the clinic.
With business expenses insurance covering those costs, the clinic keeps running while Sarah recovers. Her separate income protection policy replaces part of her personal income, so her household bills are also covered.
The example is simplified and illustrative. Benefits depend on the policy terms, the waiting period and the eligible expenses.
Waiting periods and benefit periods
Like income protection, business expenses insurance has a waiting period, which is the time between becoming unable to work and the benefit starting. Waiting periods for business expenses cover are usually short, often between two and four weeks, because few small businesses can carry their fixed costs for long without revenue.
The benefit period is usually up to 12 months. Some policies allow any unused portion of the total benefit to be paid over a longer period if your expenses are lower than the amount insured in some months.
Our guide on waiting periods and benefit periods explains how these choices affect cover and cost.
How it works alongside income protection
Business expenses insurance and income protection are designed to work together. Income protection pays you, and business expenses insurance pays the business. Holding only one leaves a gap.
For self-employed people, income protection is usually the foundation, because your personal income supports your household. Our guide to self-employed income protection explains how it works for business owners, and our guide your biggest asset is your ability to earn makes the case for protecting it.
Many insurers allow business expenses insurance to be added alongside an income protection policy, and some require it to be held with one. Make sure the definitions of disability are consistent between the two, so both pay in the same circumstances.
Who business expenses insurance suits
It is generally most valuable for businesses that:
- depend on the owner to generate revenue, so income stops or falls sharply when the owner cannot work,
- have significant fixed costs, such as premises, staff or leased equipment, and
- would struggle to fund several months of overheads from cash reserves.
That typically includes medical and allied health practitioners, dentists, vets, accountants, lawyers, consultants, and tradespeople with premises, vehicles or staff. Our guides for doctors, career and business professionals and builders and carpenters cover the wider insurance needs of these groups.
It is usually less relevant for businesses that would continue to generate revenue without the owner, such as larger businesses with a management team. In those cases, key person cover and buy/sell arrangements are often more appropriate.
Business expenses insurance vs business interruption insurance
The names are similar, but these are very different products. Business interruption insurance is a general insurance product, usually part of a business insurance package. It covers lost income and extra costs when the business is disrupted by an insured event such as a fire, storm or flood damaging the premises.
It does not usually cover the owner becoming ill or injured. If the business would stop because you cannot work, business interruption insurance generally will not respond. Business expenses insurance, provided by life insurers, is designed for that risk.
Tax treatment
Business expenses insurance premiums are generally tax deductible to the business, because the cover is for business costs that are themselves deductible. For the same reason, benefits paid are generally assessable income.
Business expenses insurance cannot be held inside super. The ownership and tax treatment depend on your business structure, so it is worth confirming with your accountant how the policy should be owned. Our guide to tax on insurance payouts covers the broader rules.
Applying for cover
Applying for business expenses insurance involves health and lifestyle questions similar to income protection, along with questions about your business and its expenses. Your occupation affects the premium and the terms available. Our guide to occupation classes explains why.
The amount you can insure is based on your business’s actual fixed expenses. At claim time, you will need to provide evidence of the expenses incurred, such as invoices, payroll records and lease agreements, so keeping good records matters. As with any insurance application, answer all questions accurately. Our guide to your duty to take reasonable care explains why.
Reviewing your cover
Business expenses change over time. A new lease, extra staff or new equipment can leave you underinsured, while moving to smaller premises might mean you are paying for cover you cannot claim. Review your sum insured whenever your fixed costs change significantly, and at least once a year.
Where professional advice adds value
Insuring a small business involves more than one policy. Income protection, business expenses insurance, key person cover and buy/sell arrangements each protect a different part of the business and the owner, and the right combination depends on how the business is structured, how it earns revenue and what would happen if you could not work.
A life insurance adviser can review your business’s fixed costs, recommend an appropriate amount and waiting period, make sure your business expenses cover and income protection work together, and coordinate ownership and tax treatment with your accountant. If you ever need to claim, an adviser can also help you through the process.
If you run your own business and want to make sure it can survive time off work, our life insurance advisers in Adelaide can help.
Frequently asked questions
What is business expenses insurance?
Business expenses insurance pays a monthly benefit to cover the fixed costs of running your business, such as rent, staff wages and equipment leases, if you cannot work because of illness or injury. It is designed for self-employed people and small business owners whose business depends on them personally.
What expenses does business expenses insurance cover?
It typically covers fixed costs such as rent, salaries of non-income-producing staff, equipment leases, utilities, accounting fees, insurance premiums, business loan interest and professional memberships. It usually does not cover your own income, salaries of income-producing staff, stock or loan principal.
How is business expenses insurance different from income protection?
Income protection replaces part of your personal income if you cannot work. Business expenses insurance pays your business’s fixed overheads. They are designed to work together, and self-employed people often need both.
Is business expenses insurance tax deductible?
Premiums are generally tax deductible to the business, because the cover relates to deductible business expenses. Benefits are generally treated as assessable income. Confirm the treatment for your business structure with your accountant.
How long does business expenses insurance pay for?
Benefits are usually paid for up to 12 months, after a waiting period that is often between two and four weeks. Some policies allow unused benefits to be paid over a longer period if your expenses are lower than the amount insured.
Can I hold business expenses insurance inside super?
No. Business expenses insurance cannot be held inside super. It is usually owned by the business or the business owner, depending on the business structure.
Is business expenses insurance the same as business interruption insurance?
No. Business interruption insurance is a general insurance product that covers lost income after an insured event such as fire or flood. It does not usually cover the owner’s illness or injury. Business expenses insurance, provided by life insurers, covers fixed costs when you personally cannot work.
General advice warning. This article contains general information only and does not take into account your objectives, financial situation or needs. It is not a recommendation to acquire, vary or cancel any insurance product. Features, eligible expenses, waiting periods, benefit periods and tax treatment vary between insurers and business structures. You should read the relevant product disclosure statement and target market determination, consider whether the information is appropriate for you, and seek personal advice and tax advice before acting on any of it. Money Path Pty Ltd is a Corporate Authorised Representative (No. 001306822) of Australia National Investment Group, AFSL 522028.
