Partnership Protection Insurance

There are two options available when considering partnership protection:

• Own life. Own life cover is suitable for businesses that have more than two partners. Each partner would take out their own policy, and pay their own premiums, the benefits of which are written in trust for the other partners. In the event of a successful claim, the remaining partners can use the lump sum to purchase the affected partners’ share of the business from their estate.
• Life of another. This type of cover is suitable if there are only two partners in the business. In this case, each partner would take out life of another policies on the other partner. If a claim is successful, the remaining partner then has the financial means to purchase the affected partner’s share of the business from their estate.

If a partner passes away then this would trigger a claim. Assuming a successful claim, this would result in a pay-out being made to the business to be used to purchase the share of the partnership from the deceased’s beneficiary – usually their partner or children.

If a partner withdraws from a partnership the policy would have to be cancelled. If the share of the partnership has been sold to another individual a new policy could be opened in the new partner’s name.

Anyone can leave a business at any time. So, if a partner leaves a partnership then the insurance policy would effectively become void and would need to be cancelled. If the share of the partnership is sold to another individual, a new policy can be opened in the new partner’s name.

Please note that if a business only has two partners and one leaves it is no longer a partnership and a partnership protection policy is effectively void.

No. If a dual partnership loses a partner it can no longer be considered a partnership.

The difference is in the liabilities that the partner can face. A general partner’s business and personal assets come into play when it comes to paying off any company debts – but a limited partner’s liabilities is just that, limited. They have no personal liability and therefore their personal assets are not subject to any scrutiny when facing company debts.

The individual partners will each pay their own premiums for the policy. The premiums can be different depending on the partners’ personal circumstances (health, age etc) and so partners may want to subsidise each others payments.

An LLP will continue to operate in the event of the death of a partner with profits paid to the deceased beneficiaries or estate. In a traditional partnership, if there is no partnership agreement, the partnership would dissolve if a partner died, and their beneficiaries would be entitled to the share of the business.