What is partnership protection?
Partnership protection is a life insurance arrangement that allows the surviving partners of a business to purchase the deceased partner's share of the business. Without it, a partner's share typically passes to their estate — potentially leaving the business with an unwanted co-owner.
How does partnership protection work?
Each partner takes out a life policy for the value of their share, written under a business trust. A partnership agreement or cross-option agreement sets out what happens when a partner dies. When a partner dies, their family receives the insurance payout, and the surviving partners receive the share.
Types of partnership protection structure
- Own life in trust — Each partner insures their own life, and the payout goes to surviving partners via trust.
- Life of another — Each partner insures the life of every other partner.
- Cross-option agreement — A legal agreement giving both parties the option to buy/sell, preserving Business Relief.
Does partnership protection cover LLPs?
Yes — limited liability partnerships (LLPs) can use partnership protection in the same way as traditional partnerships, with similar legal and tax considerations.
What happens without partnership protection?
Without protection in place, the business may face significant disruption — up to and including forced sale if the estate demands immediate liquidity. Partnership protection removes this risk entirely.
Frequently Asked Questions
They serve a similar purpose but apply to different business structures. Shareholder protection is for limited companies; partnership protection is for partnerships and LLPs.
Yes — a solicitor should draft the partnership or cross-option agreement that supports the insurance policies.
Yes. Most insurers offer combined life and critical illness options, protecting the business if a partner is diagnosed with a serious condition as well as on death.