Partnership Protection

Partnership protection guards your clients against losing control of their business in the event of a partner being diagnosed with a critical illness, terminal illness or if they die. A life or critical illness policy will provide funds to buy the interest in the partnership from the affected partner or their estate.

Partnerships and limited liability partnerships 

There are two types - traditional partnerships and limited liability partnerships (LLP). A LLP will continue following the death of a member but profits will be paid to the deceased’s estate. If there is no Partnership Agreement for a traditional partnership, it will dissolve on death and the deceased partner’s estate and beneficiaries will be entitled to their share of the business.

Why it's needed

If a business partner dies or wants to leave when they are diagnosed with a critical or terminal illness, the remaining partners may want to buy their interest in the business and keep control. But only a few will have the financial resources to do so.

Taking out partnership protection insurance gives remaining partners the financial support they need, helping them keep the business running and to retain control in difficult times.

Setting up Partnership Protection Insurance

In a traditional partnership, each partner takes out a life or life and critical illness policy and writes it into trust for the benefit of the other partner(s). We have a specimen trust document – please check with your client’s legal advisers on the suitability of this document for their circumstances.

If there are just two partners, they can each set up a personal life of another policy.

The individual partners pay the premiums - you can adjust these to reflect each partner’s share in the business.

Although the partnership may have a name and a bank account, the business cannot own property or insurance policies in its own name. In the case of a LLP, which is recognised as a legal entity, the business (rather than individual partners) can own the policy. See our Business Protection Adviser guide for more information.

If you think partnership protection could be the right cover for a client, you can find out more information in our straightforward guide and supporting literature.