Do you, a partner in an LLP, need a safety net for your loved ones in case you pass on? Can an LLP own a relevant life policy? Find out everything you need to know here.
Your remuneration package plays a vital role in attracting and retaining top talent. One key component of a remuneration package is a life cover, which gives employees peace of mind because their loved ones won’t suffer financially in their absence. In return, employees dedicate their best efforts to your business. This article answers the question ‘can an LLP take out a relevant life policy?’
What is a relevant life policy?
A relevant life policy is taken out by a company on the life of its employees, including directors, to pay out a lump sum to the individual’s dependents in the event of death or terminal illness.
Employers offer this policy as part of an enhanced payment package, making the advertised positions more attractive, thus securing the best talent in the market. The good news is this extra cost on the company is not too hefty because the premiums are counted as a tax-deductible business expense. Therefore, smaller businesses can compete with larger corporations that can take out group schemes when hiring.
Note that relevant life covers are the solution for small businesses that cannot take out group schemes for their employees. In addition, offering this policy shows you are a caring employer, further advancing your positive image in the industry.
Can an LLP own a relevant life policy?
The short answer to ‘can an LLP own a relevant life policy?’ is yes, but some terms apply, especially concerning the partners. A limited liability partnership is like a general partnership but with defined protections for each partner. In a general partnership, two or more individuals come together to make money, leveraging individual skills and other competencies, and taking advantage of economies of scale to achieve more. However, all partners share liability, no matter the source. A limited liability partnership protects each partner, where each gains according to their input and is not liable for any trouble other partners cause. In addition, creditors won’t seize their personal property if the partnership fails.
Since there’s no employer-employee relationship between you and your partners, it’s impossible to take relevant life insurance on each other’s lives. However, you can take relevant life insurance for your employees and appointed directors. Additionally, should the business grow enough to qualify for a group scheme, you can still take out relevant life insurance as additional benefits for specific individuals to supplement the group schemes offer.
What protection can the partners enjoy?
Since the partners cannot enjoy the protection of relevant life insurance, your best bet is key man insurance . A company takes out key person insurance on the life of an essential person to the business, whose absence will affect operations, business continuity, image, profitability, or any other significant angle. The business, the LLP in this case, has discretion on how it defines who is a key person.
A partner in an LLP qualifies for this cover since their death or terminal illness will affect business continuity. Since the primary motivation to form the partnership was to do business together, you must set up contingencies to cover each other’s death or terminal illness.
The value of the cover should match the value of a partner’s shares in the business. This way, once they pass on, the remaining partners will have enough to buy those shares from the beneficiaries. This solution ensures the surviving partners retain the power to protect the business from beneficiaries who may have no interest in continuing the deceased’s work or are likely to sell those shares to individuals who’ll disrupt business operations.
What’s the best move for partners?
As a partner in an LLP, you should take both policies for life cover at all levels. Relevant life cover will ensure you offer the best package for your employees so that you can get the most performance and commitment from them. Key man insurance will cater to you, your partners, and other persons considered critical to the business’s survival.
An LLP can own a relevant life policy and should consider all the benefits it offers and its strategic implications for the business. Get in touch today and let us help you find the best policy for your business.