Without a Partnership Protection plan in place, a partnership or limited liability partnership could be passed on to a beneficiary with little or no experience of running such a business. Having the plan in place can benefit surviving shareholders and business owners, as Partnership Protection Insurance is important in ensuring that the remaining owners will purchase the insured individual’s stock in the event of a business partner dying or having a serious illness. This helps them to maintain business control and ensure that it continues to run smoothly.
Partnership Protection Insurance/Shareholder Protection Insurance allows business partners to maintain control over the business they have established if their business partner dies or a critical illness is diagnosed. It can also include critical illness cover, which safeguards the interests of your organization if a partner is no longer able to perform his duties due to critical illness diagnosis such as cancer, heart attack or stroke.
Do You Need Partnership Protection?
If a business partner dies or decides to quit when a serious or terminal illness is diagnosed, the remaining partners may choose to buy their interest in the business to retain control. But only a handful would have the financial resources to do so. Taking out Partnership Protection Insurance offers financial protection that surviving partners need, allowing them to keep the company going and maintain control in tough times.
How Does It Payout And How Much Do I Need?
This form of partnership protection insurance will usually pay a lump sum to the remaining partners if the covered person passes away, is diagnosed with terminal illness or leaves work as a result of an condition specified in the scheme. The amount of insurance you take out will depend on the company’s requirements, specifically how much capital you would need to buy out a partner should the worst happen.
Tax Treatments Of Policy Payments
No tax relief on policy payments regardless of whether it’s the partnership or the partners who pay. If the partnership pays, this is treated as drawings. If they pay, it’s out of post income tax.
Tax Treatment Of Claim Proceeds
Claim proceeds paid to the owner of the policy and form part of their inheritance tax (IHT) estate.
Proceeds drop out of the policy owner’s estate when used to buy the deceased’s interest in the partnership.
How Does Shareholder Protection Insurance Work?
In the event of a business owner dying or being diagnosed with a critical illness, share protection can provide a lump sum to the remaining business owners. This means that in the event of a valid claim being made during the length of the policy, the lump sum could be used to help purchase the deceased partners/shareholding directors/members interest in the business.
For more information or if you have any questions, contact a member of our team at WIS Business Protection.
