partnership protection insurance

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Partnership-Protection Key man Insurance UK
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Partnership-Protection Key man Insurance UK

What Is Partnership Protection Insurance

Helping you secure your business in the event of death or illness of
a business partner.

Partnership protection insurance is a form of life insurance set up to help business partnerships keep control of the company they have built in the event of a partner’s death or serious illness. As well as protecting the business, it also protects the interests of the deceased’s family and ensures that they are fairly treated and their needs are met under these difficult circumstances.

The cover your business requires will depend on how your business is set up. If you run a limited company then you would be looking for Shareholder Protection Insurance. This is where life insurance is taken out on the life of the company’s shareholders. If, however, your company is a Limited Liability Partnership (LLP) life insurance is taken out on the lives of business partners.

As well as life insurance, both kinds of policy can also include critical illness cover, which protects your organisation’s interests if a partner is no longer able to carry out their duties as a result of a critical illness diagnosis such as cancer, heart attack or stroke.

Your partnership is an intrinsic part of your business success and like everything that is beneficial and profitable to your business, it needs to be protected. Partnership Protection Insurance allows you to protect your business by protecting the people who have helped it go from strength to strength. But what is Partnership Protection Insurance? How does it work? And why is it such an essential component in protecting your enterprise? Read on, and we’ll answer all of these questions and more.

Why do I need Partnership Protection Insurance?

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This includes you and your business partner/s. No matter how operationally strong your business may be now, do not underestimate the part you and your partners play as the driving force behind what makes your business stand head and shoulders above your competitors.

Even if you are relatively young and in excellent health, it behoves you to protect your business and ensure that you are able to leave a lasting legacy for your employees and your family. Nobody knows what the future may bring and in business, it is always best practice to hope for the best while preparing for the worst. If a partner with a controlling interest in your company dies or falls critically ill, the right life or critical illness policy will provide funds to buy their interest in the partnership either directly from the partner or their estate.

Not only does this allow you to continue steering the ship in the right direction, it ensures that critically ill partners have a financial safety net upon which they can fall back while they convalesce. By that same token, Partnership Protection Insurance also helps to give grieving families the financial recourse to move forward without having to worry about managing their finances alongside managing their grief.

How does it work?

In a standard partnership, partners each takes out their own life
and/or life and critical illness policy.

Hopefully the above has made you realise just how vital Partnership Protection Insurance can be in helping both businesses and families achieve positive outcomes if tragedy should strike. But how does it work?

In a standard partnership, partners each take out their own life and or life and critical illness policy. This is then written into a trust for the benefit of the other partner or partners. Your legal team should be able to help you to draft a trust document that will provide the right protection for your business’ circumstances.

If there are only two partners, each can instead set up a personal life of another policy. In this instance, the individual partners pay the premiums and these can be adjusted to reflect the extent of each partner’s share in the business.

If you opt for critical illness cover your policy will usually pay out a lump sum if a shareholder or partner is diagnosed with a specific illness or sustains an injury that is covered by the policy, and survives for a minimum of 14 days.

Partnership Protection Insurance FAQ

Here are some key advantages of partnership insurance in the UK:

  • Covers all partners together under one policy at a shared cost. This can be more affordable than separate individual plans.
  • Allows higher combined coverage amounts than individually purchased policies.
  • Simplifies administration with a single shared policy for the partnership.
  • Proceeds can be used to buy out a deceased partner’s interest so the business can continue.
  • Premiums and benefit payouts are not taxed under most partnership policies.
  • Flexible structuring to insure all partners or just key partners.
  • Policy proceeds provide liquidity to settle partner affairs if they pass away.
  • Locks in the insurability of partners in case of future health changes.

By sharing coverage under one partnership policy, many small businesses find it is an efficient and affordable way to put protection in place.

That depends on how your business is set up. In the case of a standard partnership the individuals own the policies rather than the company. Although the partnership may have a name its own bank account, remember that businesses set up as partnerships cannot own property or insurance policies in their own name. In the case of a LLP, however, it’s different. Because an LLP is recognised as a legal entity, the business can own the policy rather than the individual partners.

If your business is an LLP, it will continue to operate following the death of a member, but profits are paid to the deceased’s estate. If the business is a traditional partnership but there is no Partnership Agreement in place, it will dissolve on the partner’s death. As such, the deceased partner’s estate and beneficiaries will be entitled to their share of the business.

Why Choose Us?

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The standard of service was first class. They kept me up to date with progress on my Relevant Life Policy, followed up promptly following delays caused by my medical practice being slow in compiling reports, and responded instantly and clearly to any questions I had.

How can I find out more about what kind of cover is right for me?

If you need further advice we’d be delighted to discuss how our Partnership Protection Insurance can aid your operation and advise on the right cover for your business. Call us today on 02071128844

Who owns the policy? The partners or the business?

That depends on how your business is set up. In the case of a standard partnership the individuals own the policies rather than the company. Although the partnership may have a name its own bank account, remember that businesses set up as partnerships cannot own property or insurance policies in their own name. In the case of a LLP, however, it’s different. Because an LLP is recognised as a legal entity, the business can own the policy rather than the individual partners.

What happens if my business partner dies and I don’t have an agreement in place?

If your business is an LLP, it will continue to operate following the death of a member, but profits are paid to the deceased’s estate. If the business is a traditional partnership but there is no Partnership Agreement in place, it will dissolve on the partner’s death. As such, the deceased partner’s estate and beneficiaries will be entitled to their share of the business.

Further Reading

Partnership-Protection Key man Insurance UK

Shareholder Protection Tax Treatment

Check out our guide on the taxation of shreholder protection insurance. Make sure everything is set up correctly in the most tax efficient way.

Partnership-Protection Key man Insurance UK

Check Out Our Guide To Relevant Life Insurance

Tax efficient life insurance for employees and directors. Find out all you need to know here.

Partnership-Protection Key man Insurance UK

Key Man Insurance Guide & Quotes

Maybe its key person insurance you need instead. Check out our guide for all you need to know about getting your key people insured.

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