California Life and Health Insurance Practice Exam

What does Business Overhead Expense Insurance cover?

1. Personal expenses of business owners

2. Business expenses when a business owner becomes disabled

3. Employee salaries

4. Liability claims against the business

The correct answer is: Business expenses when a business owner becomes disabled

Business Overhead Expense Insurance is designed to cover the ongoing operating expenses of a business in the event that the business owner becomes disabled and is unable to work. This type of insurance ensures that essential costs such as rent, utilities, and other overhead expenses are covered during the period when the owner cannot manage the business due to their disability. This coverage is particularly important for business owners as it helps maintain the stability of their operations and supports the continuation of the business in the owner's absence. By alleviating the financial burden of overhead costs, it allows for a smoother transition until the owner can return to work or make alternative arrangements for the business. The other options do not accurately reflect the purpose of this insurance; for instance, while personal expenses may be significant for an owner, they are not covered under this type of policy. Similarly, employee salaries are generally managed separately and may not fall under the scope of overhead expenses that this insurance is designed to address. Liability claims pertain to legal responsibilities and are not covered by Business Overhead Expense Insurance either, focusing instead on protecting against losses arising directly from the business's operational costs.