If you have a business partner(s) have you ever considered what would happen if that person was unable to continue to work in the business or worse still that person died? Aside from the emotional grief of losing a close working and highly skilled business partner, the remaining business partner in these circumstances will also be faced with a number of problems such as:
- Finding an adequate replacement that can take on the work that person performed in the business;
- Dealing with the relatives of the deceased who may be seeking to work in the business; and
- Dealing with relatives of the deceased that want to be paid out for the deceased’s share of the business.
Partnership insurance provides financial protection in the event that one of the business partners suffers a serious illness, becomes permanently disabled or dies.
Partners under the terms of their partnership (or shareholder) agreement can agree to pay out a specified amount in the event of death or incapacity of a business partner. It is important that the agreement is appropriately drafted so that the agreed outcomes can be effected in conjunction with the pay out of insurance. This would usually include a mechanism for the remaining party to acquire the deceased’s interest in the business conditional upon payment of the insurance to the deceased’s estate.