Can I get life insurance on my business partner?
When we talk about life insurance we are usually referring to insuring yourself or your spouse to protect the family's financial future if one of you should die. But if you run a business, either as a partnership or limited company, it would make sense to protect that business in the event of one party passing away.
What would happen to a business if one business partner died?
- the business would have to operate without a key person, this could impact on the future of the business in both costs and future business
- if there is a partnership agreement in place then the deceased's estate must be paid the of the value of the business putting a financial strain on the business
- if there is no legal partnership agreement in place then the Partnership Act will automatically dissolve the partnership and the family of the deceased will be entitled to their share of the proceeds
- with the death a partner banks may want to negotiate new terms for any outstanding loans and may be reticent to agree further loans
Can I get life insurance on someone other than my spouse?
- you can take out life insurance on someone other than your spouse but they must be financially dependent on you, and a business partner would fall into this category
- life insurance policies can provide funds to purchase the the deceased partner's part of the business paying the realised funds into the deceased's estate
- policies are owned by one partner on another partner's life or by the business on both or all lives
- details of the policies should form part of a partnership agreement so there is clarity on what should happen in the event of a death
- the amount of life insurance should be reviewed regularly to keep the sum assured in line with the value of the business
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