Protecting the business Partnership.
Partnership Insurance
The sudden death of a partner can cause immediate financial problems to surviving partners:
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In the case of a partnership, the death of a partner can cause the immediate dissolution of the partnership, unless there is a prior agreement to the contrary.
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The next of kin of a deceased partner may want to come into the business with the surviving partners, who might not want this.
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Even if the next of kin are willing to sell their share of the business back to the surviving partners, the surviving partners simply may not have the liquid or the borrowing capacity to do so at that time.
Structure
There are two key components to the structure of a Partnership Insurance contract:
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There is a legal agreement, often called a Buy/Sell Agreement, between the partners, under which on the death of a partner the deceased partner’s next of kin are bound to sell, and the surviving partners are bound to buy, the share if deceased partner.
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To ensure that the surviving partners are in a financial position to complete the transaction, each partner’s life would be insured for a sum assured equal to the estimated value of their share of the business, in order to provide sufficient liquid capital on death for the surviving partners.
Arranging
The life cover can be arranged in one of two ways
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Life of Another- where one partners insures another partner’s life
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Own Life in Trust- each partner insures himself for an amount equal to the estimated value of their share of the business.
