This insurance cover is normally put in place in order that remaining partners of a Company are in a financial position to buy out the deceased Partner’s share of the Company from the next of kin.
The Company is valued and the percentage shareholding of each partner defines the level of cover required for each partner equal to the individual’s shareholding value.
In the event of death the policy pays out the relevant value which can then be paid to the deceased partner’s estate. Usually a partnership agreement is drawn up which details how this event is to be treated between all the partners.
It is a very important protection, providing the Company/Partners with sufficient finance to sustain the Company and avoid drawing reserves or creating borrowings on the Company/Partnership.
It also avoids any potential legal action by next of kin who usually are not interested in becoming involved in the running of the business.