Not all companies are set up on a limited or sole trader basis thus Partnership Protection protects those business’s set up as partnerships.
If a partner dies or becomes critically ill, the life insurance policy pays out to the surviving partners so that they have the funds to buy out the deceased/ill partners interest.
Why Is Partnership Protection Important?
A Partner’s interest is based on their value of the assets of the business. If there is no Partnership Agreement in place and one partner dies, then the Partnership can dissolve in that the first partner’s share would pass to their estate who may have no interest or knowledge in running the business. In most cases the estate would want their share of the capital which could force the business to fold. On the other hand, if the beneficiaires decided that they did want to have an interest in running the business the surviving partner/s might not want
to work with someone who draws profits from the business but is not able to contribute to its profits as much as the previous partner.
The surviving partners could try to borrow the funds from a lender if Partnership Protection was not in place but most underwriters would factor in the loss of a partner who may have been key to the business’s profits and thus may be unwilling to lend in some circumstances.
Clearly Partnership Protection has a place in any well organised business.