Partnership Protection Insurance – an absolute must

In my years of dealing with partnership agreements I have come across so many situations whereby not having the right things in place caused personal and financial mayhem. Sometimes sharing the value of partnership protection insurance is difficult to convey as most businesses are focused on the transactional side. They don’t consider an enforced exit strategy they didn’t plan on.

Partnership protection insurance for a partnership is like saying you need legs on a body, strings on a guitar, a helmet on a motorbike. Most partnerships look at their agreement (if they have one!) once, when they set it up. They don’t consider it beyond that and pay the price when events occur.

I had a company with 12 partners. In their agreement it said that a partner off work through any kind of illness could continue to take full drawings for a year. Beyond a year they could be forced to retire and sell their shares to the remaining partners.

They had no protection in place at all!! That meant (in this case) 100k a year still going out. No revenue being bought in by the ill partner and a 400k bill at the end of the year to buy their shares.

The solution: Key Person insurance for Life and Critical Illness for all partners (on a group scheme which means free medical underwriting limits mitigating existing conditions). Enough to cover the 100k a year drawings and another 100k to employ a replacement to bring the business in and maintain profit levels. Group Income Protection to cover non-critical events that may just keep a partner off work for a long time. Partnership protection insurance to make 400k available should any partner die or suffer a critical illness and the remaining partners have to buy their shares.

Total cost in this case? £1,000 a month. Less than the cost of a part time member of staff to take 6 million pounds of risk of the partnerships balance sheet and on to an insurance providers. A no-brainer!

You don’t go on tour without spare strings, guitars, drum sticks, a plan for the van breaking down, anything that can stop you trading. Well, you can do, but you know the risk. If it goes wrong….game over, back to being a roadie!

As the great Jerry Bayman from Bright Grey would say about partnership protection insurance…. Are you indulging in unprotected success?

Rock on