What is Partnership Share Protection Insurance?

Partnership Share Protection Insurance is a way of mitigating or reducing the financial effects of an adverse or terminal life event relating to those who are part owners of your business.

Adverse life events covered by partnership share protection insurance are contracts to provide financial protection from accident and sickness, or illness and disability, or even Critical Illness.  

Death is a terminal life event covered by partnership share protection insurance are contracts to provide financial protection from the death of a part owner.

Depending on the type of partnership share protection insurance policy taken out by you or on your behalf, a payment will be made either as a lump sum to the beneficiaries of the policy in the event of a claim being made.

 

How does Partnership Share Protection Insurance work?

The purpose of Partnership Share Protection insurance is to provide funds to the surviving partner/partners to enable them to purchase the deceased partner’s shares from the deceased’s estate. Critical illness cover can be included in the event of a partner’s disability.

With regard to the death of a partner, there are three parts to this process:-

  • A Cross option agreement enables the surviving partners to have an option to buy the deceased partner’s share of the business from the deceased partner’s estate. A corresponding option allows the deceased partner’s estate to request the surviving partner/partner’s to buy the deceased partner’s share of the business from the estate.
  • A life insurance policy (term assurance upto retirement age) is taken out by each of the partner’s lives for the benefit of the other partners on the death of a partner. This pays out the lump sum to enable the deceased partner’s share to be bought from the estate.
  • Each life policy is then assigned to a Partnership Share Protection Trust (usually flexible power of appointment trust) to allow each partner’s to make the other partner’s beneficiaries to their policy in the event of a claim.    

With regard to the Critical Illness of a partner, a similar process applies except that a Single Option is usually used. This option allows the disabled partner to request the other partners from buying the disabled partner’s share, but does not provide an option for the other partner’s requesting the disabled partner to allow them to buy the disabled partner’s share.

 

Why should I take out Partnership Share Protection Insurance?

The key purpose of partnership share protection insurance is to provide financial protection so that the business can continue with the least disruption in the event of a claim.

There are a number of factors about an organisation’s specific circumstances that will determine which of the type of partnership share protection insurance that may be applicable based on their suitability and affordability.

 

How should I take out Partnership Share Protection Insurance?

The first and most important step after you have decided you may have a need for partnership share protection insurance cover is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable type of partnership share protection insurance cover is for your particular circumstances we make an application on your behalf to take out a protection policy based on how much you can afford and the amount of cover required, for a length of time to match your needs.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk