Partnership Protection

Partnership Protection
Partnership protection insurance safeguards businesses against losing control of the partnership if a partner is diagnosed with a critical or terminal illness, or if they die.
The policy will provide the remaining partners with the funds to purchase the share or portion in the partnership from the affected partner’s beneficiaries or their estate
• Avoid the sale of personal or business assets to purchase the shares.
• Protect the business against uninterested successors.
• Ensure the affected partners’ beneficiaries are compensated.
If a partner in the business dies, or suffers a severe or critical illness, their share of the business would pass to their beneficiaries (often their family). This could result in a new partner who has little or no interest in the business, and may also leave the affected partners’ dependants financially vulnerable. Partnership protection insurance gives the remaining partners the funds to purchase the affected partner’s share and retain control of the business.
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It could be difficult for the remaining partners to find the financial resources to purchase the share, and this may result in business assets being sold off. Partnership protection prevents this from happening and gives the business an element of stability during a stressful period.

How does it work?
There are two options available when considering partnership protection:
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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.
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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.
What happens when a partner in a partnership dies?
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.
What happens when a partner or withdraws from the partnership?
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.
Who pays the premiums?
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.
Is there a difference between traditional partnerships and limited liability partnerships (LLP)?
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.

Finding the right Partner Protection policy
The market leaders in the UK include well-known providers. Most experts would recommend seeking professional advice first. Online rates tables can give you an overview of what these providers offer, but these comparison tools are not bespoke to your business.
The question of who is the best insurance provider for this type of policy is a subjective one. The right insurer for you will be the insurer that is best positioned to meet your partnership cover requirements, and offer the most cost-effective premiums.
An independent financial advisor can help you find the right provider by matching your firm's needs and requirements to an insurer's specialty. This is where we can help.