Life & Health Insurance Practice Exam 2025 - Free Practice Questions and Study Guide

Benefits received from a Business Overhead Expense (BOE) policy are indeed taxable to the business. This means that when a business claims benefits from such a policy to cover its overhead expenses during the period of disability of the owner or key person, those benefits are treated as taxable income for the business.

The rationale behind this taxation is that since the premiums paid for BOE insurance are typically not tax-deductible for the business, any benefits received must be taxed when they are collected. Therefore, the IRS views the benefit payments as income, ensuring that tax liability is incurred by the business when the coverage is utilized. This taxation structure allows for a clear line of distinction between the benefits that serve as a financial support mechanism for ongoing business expenses and personal income tax considerations.

In contrast, options that involve tax-exempt status, tax-deduction eligibility for the owner, or consideration as personal income do not apply here since they do not accurately reflect the business structure or the tax treatment of BOE policy benefits. Such distinctions are critical for understanding how BOE insurance functions in a business context.