AM Financial is a financial consultant based in Dublin. AM Financial helps protect families and businesses. We have closed a Partnership Insurance deal with a local business in Malahide. This has given certainty to the business in the event of the death of any partner. Please contact us if this is a risk you are looking to close off.
What is Partnership Insurance ?
In terms of insurance for your business, most are covered for property, equipment and vehicle insurance. However, a risk that is often overlooked is what happens to a business if one of the partners dies? Would the surviving partner have the funds to buy out the deceased partner's share of the business? The consequences of this can be huge but with a little planning, this risk can be covered off.
What is the risk ?
The death of a partner in a business can be emotionally devastating to all involved. However, the financial implications can also wreak havoc. Under the Partnership Act 1890, the deceased partner's share of the business automatically becomes part of their estate. It becomes a debt that can immediately be called unless the partners have an agreement to the contrary.
Does the surviving partner have the funds to buy out the share? Can they get a loan to do this ?
But how likely is it that one of the partners will die before retirement ?
It depends on how many partners there are obviously. See the probabilities in the table below. For a business with only two partners, the chances are about 1 in 5. With six partners, the chances become 1 in 2.
Number of Partners Probability of at least one partner dying
2 21%
3 29%
4 37%
5 44%
6 50%
7 55%
8 60%
Table : Source : CSO Table 16 on Irish Life 2010 / 2012,
partners assumed to be aged exactly 40 and males.
So what is Partnership Insurance ?
Partnership Insurance provides the funds to allow the surviving partner(s) to buy out the share of the deceased partner on his/her death. A legal agreement is drawn up and appropriate life policies are put in place to arrange it. This gives certainty to the business and to the estate of the deceased partner.
How does it work ?
There are a number of ways of putting the protection into action. A simple example is the case of a business with two partners. Life policies called "life of another" policies can be set up. The policy would pay out proceeds to Partner A upon the death of Partner B and vice versa.
For example, in a business held 50/50 by two partners, valued at €1,000,000, life of another policies with a payoff of €500,000 are put in place. If Partner A died, Partner B would receive the funds and use the funds to buy out the other 50% share in the business. The €500,000 in funds would flow to the next of kin of Partner A. It eases the financial worries in a traumatic time for all concerned.
Seems simple
More life polices are obviously required for businesses with more than 2 partners. Also, different structures are possible. For example, life in a trust structures are possible where the proceeds are held in trust instead of paid directly to the other partner. However, the end effect is similar to the example about. AM Financial can take you through the options.
What about the tax effects ?
In general, there will be no income tax, capital gains tax or inheritance tax payable on the life policy proceeds.
What do I do next ?
If you are in a business with others and have not yet considered the impact of the death of a partner, contact us at AM Financial.
AM Financial can assist you in putting together Partnership Insurance. You will find that the process is easy, relatively inexpensive and will bring peace of mind.
Contact us also if you are looking at other ways to protect you and your family. Are you wondering if you have enough (or too much!) life assurance? Are you looking for insurance that pays your salary if you can't work? Are you looking for insurance that pays out if you suffer a serious illness? Or are you just confused by life assurance and unsure if you need protection? Come and talk to us
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