Partnership insurance offers a lump sum payout for the death of an insured partner, which can be used to buy out the deceased's company shares from their legal heir. This policy can be taken by any company registered as a partnership.
Business partnerships are forged on years of mutual trust, collaboration and friendship. However, there comes a time when both partners need to consider the future of their business and partnership in the absence of the other.
The passing of a business partner can be incredibly distressing and traumatic to the other party. Moreover, it can jeopardise the financial security and stability of the partnership, as the remaining partner(s) will require a significant sum to buy out the deceased's share of the company.
Partnership insurance is the perfect solution for this. It ensures a smooth transition of control to the remaining partner by providing the funds to compensate the deceased's estate. It allows for the partnership to continue without the involvement of the next of kin.
What is Partnership Insurance?
Partnership insurance is a business protection insurance product purchased by business partners to secure their business against events like death or critical illness that can occur to the parties involved.
It provides compensation to the surviving business partner(s) as a lump sum amount on the death of the other insured partner. This allows surviving partners to buy out the deceased's share of the company from their next of kin.
How Does Partnership Insurance Work?
Insurance for a partnership offers a lump sum amount to compensate for the event of an insured partner's death or inability to continue with the business. Generally, the policy is bought by the business and states the business as its beneficiary.
Hence, the cash payment of the lump is paid to the business, where the surviving partner(s) would use that payment to buy the deceased's shares from their next of kin.
This way, the deceased partner's family would get everything they are owed, and the surviving partner(s) can run their business as they see fit. Neither party would be stuck in a business partnership they do not wish to be in.
Some insurance partnership plans may also involve the partner taking life insurance under their own names for each other's benefit. This allows the surviving partner to make immediate payments on the other partner's death due to legal obligations.
Lastly, the premiums paid under this policy must be done regularly during the policy term and will depend on factors like the value of the partnership, the company's net assets, etc.
Benefits of Partnership Insurance
Financial Stability: Provides required funds to the remaining partner/s to pay for the estate of the deceased partner, thereby avoiding any financial strain in case of untimely demise.
Ease and Choice: The deceased partner's next of kin is not obliged to become involved in the business partnership and is paid their dues.
Peace of Mind: Business partners can rest easy knowing they can retain control of their affairs even during unexpected perils.
Flexibility: This insurance plan can also be customised to cover critical illnesses.
Why Get Partnership Insurance?
The death or unavailability of a partner can bring significant financial and legal problems for a business partnership. On death, the remaining partner may be legally required to pay an immediate amount to buy the deceased partner's shares.
In this case, the money required should cover various costs such as any share of partnership fixed assets, undrawn profits and the balance of the deceased partner's capital.
The partnership can also be under financial stress to pay the owed amount to the deceased's legal heirs.
A partner's insurance can provide the necessary funds for all of these instances while ensuring the financial stability of the partnership.
Insurance for partnerships is a great way to safeguard your business from any future pitfalls. It offers monetary compensation upon the death of an insured partner so that the surviving partner(s) quickly buy out the deceased's estate, ensuring the partnership's financial stability.
Business owners of SMEs can significantly benefit from this type of business insurance as it will ensure the financial security of a growing company. Hence, if you and your business partner are looking into SME insurance, a partnership insurance policy is worth considering.