Question

With a Business Overhead Expense Policy, all of the following are claims that are covered, except:

A. Office rent.
B. The salary or profit of the business owner.
C. Utilities.
D. Employee labor.

Answer 1

A Business Overhead Expense Policy covers various operating expenses except for the business owner's salary or profits which are considered implicit costs.

Step-by-step explanation:

When it comes to a Business Overhead Expense Policy, it is designed to cover the ongoing operating expenses of a business when the owner is unable to work due to a disability. Covered expenses typically include office rent, utilities, and employee labor. However, the salary or profit of the business owner is usually not covered as these are considered to be an implicit cost, representing the opportunity cost rather than an out-of-pocket expense.

A Business Overhead Expense Policy is crafted to safeguard a business by covering ongoing operating expenses in the event of the owner's disability. This insurance typically extends coverage to essential expenses like office rent, utilities, and employee salaries, ensuring that the business can continue its operations during the owner's incapacitation. Notably, the policy usually excludes the owner's salary or profit from coverage. These are deemed implicit costs, representing opportunity costs rather than out-of-pocket expenses. By focusing on tangible operating costs, the policy aims to maintain the financial stability of the business during the owner's disability, allowing for the seamless continuation of operations without a direct financial burden on the owner's personal compensation, which is considered an opportunity cost rather than a direct, tangible expense.

Answer 2

A Business Overhead Expense Policy does not cover the salary or profit of the business owner, which is considered an implicit cost, but it does cover explicit costs such as office rent, utilities, and employee labor.

Step-by-step explanation:

The claim that is not covered by a Business Overhead Expense Policy is the salary or profit of the business owner. These policies typically cover ongoing business expenses such as A. Office rent, C. Utilities, and D. Employee labor in the event that the owner is unable to work due to a disability. However, they do not cover the owner's salary or profits as these are considered implicit costs associated with the opportunity cost of the owner's resources.

Understanding the difference between explicit and implicit costs is crucial in recognizing what is covered by such insurance policies. Explicit costs are actual payments like wages and rent, while implicit costs include things like not earning a salary because the owner is working in their own business, or using property they own as a store without paying rent. These implicit costs are not covered because they are not out-of-pocket expenses.