Business Partnership Protection Insurance Cover 2024
Are you in a professional partnership? Are you worried about uncertainty if something happens to one of the other partners, such as death or a critical illness diagnosis that stops them from working?
Did you know that business partnership protection insurance can safeguard against future situations and ensure your business continues to thrive in case of an unexpected event?
We will explain how partnership insurance works, what to look for in a policy, and how to protect yourself.
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What is Partnership Protection Insurance?
Business protection insurance covers the lives of the partners in partnerships and limited liability partnerships. It differs from limited companies, where the corresponding cover is shareholder protection for shareholders and business owners.
At its heart, partnership protection insurance is a life only or life with a critical cover policy that is put in place for each partner and then written into trust for the benefit of the other partners in case of death or diagnosis of a critical illness.
Broader options are also available as part of a more comprehensive business protection insurance if the business has complex debt associated with a particular partner. We will touch upon this later in the guide.
How Do You Protect Yourself in A Partnership Business?
The main reason for setting up a policy is for surviving partners to buy a deceased partner’s interest in a partnership and retain control.
Without the funds to purchase the interest, there is uncertainty if the shares pass to the deceased’s estate, whose family members or beneficiaries may be passive or aggressive shareholders in the partnership practice.
Having the capital available from a policy to purchase the outstanding shareholding means no additional funds need raising.
It means that there is no disruption to the day-to-day running of the business, and it means that there is a certainty for the staff in the practice and business owners alike.
Partnership protection insurance should include three key elements which are as follows:
- A partnership agreement which sets out how a partnership is valued and what the rights are of each partner
- The necessary insurance cover to make sure that there is capital to buy out any partner share
- A tax-efficient vehicle, typically written into trust
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How Is A Partnership Valued for Partnership Protection Insurance?
As business partnership insurance is, in essence, a life insurance policy for each of the individual business partners that is then written into trust, the level of cover will depend on the business’s requirements and how much capital the remaining partners need to buy out a deceased business partner.
The amount of recommended cover should equal the market value of each business partner’s share of the business. In the absence of an accountant’s valuation, to fully calculate the value of a partnership and how much cover should be in place for each partner.
The key considerations are as follows:
- A full cash flow analysis of the business needs undertaking
- Detailed analysis of the profits in the partnership, how they have changed over time and any business requirements
- A complete cashflow analysis of the business
- Assets, including vehicles, property, and specialist equipment
Suppose the business has a complicated setup structure. In that case, getting a valuation from an accountant, guidance from a tax specialist, and using the services of a specialist broker or financial adviser is essential.
As a further basis for calculating the amount of life cover, an insurer will also need the personal information of each partner which will include but is not limited to the following:
- What is the required policy duration?
- What is the level of cover that is required?
- Are they a smoker or non-smoker?
- Do they have any underlying medical conditions?
- Do they participate in dangerous pursuits such as extreme sports?
- What age are they when the policy is going to be taken out?
- Do they need critical illness and/or terminal illness cover
How Do you Compare Partnership Protection Quotes?
The best way to compare quotes is to use an independent broker that has relationships with multiple insurance providers.
Unlike going to an insurer directly, which will only show you their products, independent brokers can offer quotes from the whole market, allowing you to choose a policy that best suits your partnership’s circumstances.
A policy must pay out the necessary capital to buy out a fellow partner when it is most needed. Only through the proper research by a broker, like completing a detailed questionnaire, can a watertight policy be put in place to ensure a payout.
Insurance Hero is an independent broker with experience providing partnership protection quotes to partnerships of all sizes. With a team of professional and knowledgeable staff, Insurance Hero will work closely with you to ensure that a policy provides the protection that your business needs through in-depth fact-finding.
You can contact Insurance Hero on 0203 129 88 66, where our friendly and discreet team of brokers will carefully review your policy requirements.
Different Types of Life Cover
When selecting life cover as part of your partnership protection, you should be aware of different types of cover that are available and include the following:
Increasing life insurance cover
Over the policy’s term, the cash lump sum increases in tandem with the UK government’s consumer price index (CPI), which is an inflation benchmark.
Where there are periods of no inflation, the size of the payout remains unchanged, and the monthly premiums stay the same.
Decreasing life insurance cover
The lump sum payout decreases for each month that passes in the fixed duration of the life policy. An example of this useful feature may be matching the payment schedule of a mortgage, which is continually reduced over time.
Level life cover
With level cover, the amount of business protection remains the same throughout the life of the policy.
What About Life and Critical Illness Cover?
Critical illness is a valuable addition to a life policy as life insurance only covers the death of a partner. There may be circumstances where they do not die but can no longer work due to the diagnosis of a disease or a condition.
Critical illness protects against such an eventuality.
The key features of critical illness
Any payout for a critical illness occurs if the policyholder survives fourteen days from diagnosis. A standard list of qualifying critical conditions is usually laid out at the start of a policy.
Additional medical procedures and diseases can also be specified for inclusion before a policy starts.
Standard types of critical illnesses typically include the following:
- Loss of hand or foot
- Cardiac arrest
- Stroke
- Heart attack
- Severe lung disease
- Kidney disease
- Loss of speech
- Certain types of cancer
- Coronary artery by-pass grafts
- Parkinson’s disease
Terminal illness
Many insurers offer an option where terminal illness is part of the terms of coverage. If a fellow business owner is diagnosed with a terminal illness and has less than 12 months to live following diagnosis, a lump sum payout can take place.
Are There Any Alternative Types of Cover?
There are two other options for cover if you are in a partnership, which is the following:
Life of another policy
When two people are in a business partnership, it is possible to take out cover called ‘life of another on the other partner. In the event of a claim on the policy, it would be made by the surviving person in the partnership.
Business loan protection plan
Depending on the partnership’s balance sheet, a business loan protection plan may be a desirable option. Standard partnership protection can buy out a deceased partner’s shares; however, if a business has complex debts associated with the partner, a business loan protection plan will ensure that any debt owing to creditors is repaid.
It is a specialist area, and expert advice should be sought when considering a business loan protection plan.
Insurance Hero is an independent insurance broker that specialises in business protection insurance. For a detailed quote that is closely tailored to your business’s needs, please contact Insurance Hero on 0203 129 88, and one of our experienced brokers will guide you through policy requirements.
Summary
If you are in a partnership, business partnership protection insurance should be a key consideration right from the outset.
Hopefully, our short guide has detailed the reasons for getting cover written into trust for all the partners, which will allow your business and your staff to thrive even through the hardship and sadness associated with the loss of a partner.
