Partnership Protection Insurance

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Partnership protection insurance, also known as business partnership insurance, is a type of insurance policy that helps protect the financial interests of business partners in the event that one partner dies, becomes disabled, or otherwise leaves the partnership. This is done to safeguard businesses against losing control in case one of the partners dies or is diagnosed with a terminal illness.

The insurance policy provides funds to buy the share in the partnership back from the beneficiaries of the ill or deceased partner. This type of insurance works to protect:

  • Business partners in a partnership or multi-owner company
  • Shareholders in a private limited company
  • Directors in closely-held companies
  • Family members of the insured individuals

Partnership protection insurance gives businesses a sense of security, and prevents a partner’s shares being sold to an unknown party by their beneficiaries. Fill out our quick form to get a fast, free and reliable quote tailored to your needs.

How Does Partnership Protection Insurance Work?

When it comes to partnership protection, there are two options to consider:

  • “Own life” coverage: This option is suitable for businesses with more than two partners. With this type of policy, each partner takes out their own policy and pays their own premiums, with the benefits going into a trust for the other partners. If a claim is successful, the remaining partners can use the lump sum to buy out the departing partner’s share of the business. 
  • “Life of another” coverage, which is suitable for businesses with only two partners. With this type of policy, each partner takes out a policy on the other partner. If a claim is successful, the remaining partner has the financial means to purchase the departing partner’s share of the business.

Is Partnership Protection Insurance Good for Small Businesses and Start-Ups?

Partnership protection insurance can be especially important for small businesses, where the loss of a partner can have a significant impact on the company’s operations and financial stability. It can provide peace of mind and security to business partners, knowing that they have a plan in place to handle unexpected changes in the partnership.

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What Happens When a Partner in a Partnership Leaves?

  • A business partner can leave a business whenever they like.
  • In general, partnerships are considered “at will,” which means that a partner can withdraw from the partnership or be removed by the other partners by a vote. This can be done at any time, for any reason, with a few exceptions. 
  • However, if a partner withdraws from a partnership, then the policy would be cancelled.
  • If the share of the partnership had been sold to another individual then a new policy could be opened in their name instead.

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What Happens if One Person Leaves a Two-Person Partnership?

If a dual partnership loses a partner it is no longer considered a partnership. If a business has only two partners and one leaves, the partnership protection policy becomes void and will be cancelled.

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What Happens When a Partner in a Partnership Dies?

If a partner dies, this triggers a claim. Partnership protection insurance policy provides financial support to the remaining partners to help cover the cost of buying out the departing partner’s share. 

If this claim is successful, a payout would be made to the business, which should be used to purchase the deceased’s share of the partnership from the deceased’s beneficiaries. This is usually their parents or their children. 

What Is the Difference Between a Limited Partner and a General Partner?

  • A general partner’s business and personal assets can both be used when it comes to paying off any of the company’s debts, whereas a limited partner will have no personal liability, so their personal assets will not be involved in the repayment of their company’s debts 
  • 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.
  • 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.
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Who Pays the Partnership Protection Insurance Premiums?

Each partner pays their own premiums. The premiums for each partner can be different based on their own age, health, medical history, lifestyle habits, and hobbies. In many cases, partners subsidise each other’s payments.

How Do I Choose the Right Partnership Protection Insurance Policy?

When looking for partnership protection insurance, it’s important to determine the appropriate amount of coverage based on the value of the business and the financial needs of the partners. 

You should also carefully review the policy’s exclusions and limitations to understand what is and is not covered under the policy.

Is There a Difference Between Traditional Partnerships and Limited Liability Partnerships (LLP)?

An LLP continues to operate if one partner dies. Their profits will be paid to their beneficiaries or estate. However, in a traditional partnership, unless there is a partnership agreement in place, the partnership dissolves if one partner dies. Their beneficiaries would be entitled to their share of the business.

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What Happens if I Am Unable to Make Payments on My Partnership Protection Insurance Policy?

If you are unable to make payments on your partnership protection insurance policy, your coverage will be at risk of lapsing. This means that the policy will no longer be in effect and you will not be protected by the insurance. 

You must keep up with your premium payments to ensure that your coverage remains active. If you are having difficulty making payments, contact your insurance provider to see if there are any options for assistance or alternative payment arrangements.

Is Partnership Protection Insurance the Same as Life Insurance?

No but they are similar. They both provide financial protection in the event of a partner’s death. However, partnership protection insurance is specifically designed to protect the financial interests of business partners, whereas life insurance can be used to protect the financial interests of the deceased’s family.

Can I Cancel a Partnership Protection Insurance Policy?

Again, it depends on the specific terms of the policy and the insurance provider’s guidelines. In general, you will need to provide written notice of your intention to cancel the policy, and you may be required to pay a cancellation fee.

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How Much Does Partnership Protection Insurance Cost?

  • The cost of partnership protection insurance will depend on a number of factors, including the size of the business, the age and health of the partners, the amount of coverage needed, and the type of policy chosen. 
  • In general, premiums for partnership protection insurance are likely to be higher for businesses with older partners, or partners with health conditions, and for policies with higher coverage amounts.
  • It’s a good idea to shop around and compare quotes from multiple insurance providers to find the most affordable policy for your needs.

Can I Add a New Partner to an Existing Partnership Protection Insurance Policy?

Yes, usually. It depends on the terms of your specific policy, and your insurance provider’s guidelines, so it can be worth taking a look before selecting which provider you want to work with.


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