Every good partnership needs backup.
It really does seem that the insurance options available to you are endless and, as a result, it can be pretty easy to just dismiss those you are less familiar with as unnecessary.
However, when you run your own business, it’s important to do your due diligence where insurance is concerned as much as you would with anything else related to your business. So, in that spirit, let’s have a closer look at partnership protection insurance so that you can make a more informed decision about whether this is a policy worth considering.
What is it?
Well, firstly, if you are a sole business owner, then let’s save you some time: You don’t need to read any further because you can’t have partnership protection insurance when there is no partnership to protect.
If, however, your small business is one with one or more partners, then it’s a good idea for you to keep reading.
In a nutshell, partnership protection insurance provides a “safety net” of sorts in the event that one of the business partners suffers a serious illness, becomes permanently disabled or passes away.
In the event of death, partnership protection insurance enables the other partner/s to buy out the deceased partner’s share of the business from whomever inherits it. In the event of a partner suffering an illness or disablement, such a policy provides the other partner/s with the funds to buy out the incapacitated partner’s share directly from them.
In essence, partnership protection insurance enables a business to continue operating should the worst happen.
What are the key things to consider?
Partnership protection insurance is one of those policies that requires you to consider things that are not at all pleasant. Having to consider the possibility of illness, permanent disablement or death befalling you or your partner/s is particularly confronting. However, having a plan in place should something like that happen is all part of being a responsible business owner.
Such a plan may or may not involve partnership protection insurance, but in deciding if such a policy is relevant to your business, ask yourself the following questions:
- If one of the partners in your business were to become permanently disabled, ill or pass away, would the business survive?
- If a partner in the business were to pass away, who would own his or her shares? Would it be that partner’s family or someone else?
- Would you and any other partners be comfortable working with whomever inherits a deceased partner’s shares, and would you be comfortable with this person being a partner in the business?
- If something were to happen to one of the partners in your business, would the other partner/s be able to afford to pay him or her out?
- If something were to happen to one of the partners in the business, would his or her family survive financially?
These are the questions you need to be asking yourself when making an evaluation about the relevance of partnership protection insurance to your small business.
Do you need it?
As with any insurance policy, you should examine the pros and cons as they relate to your particular situation. If the added security partnership protection provides has piqued your interest, discuss it with your partners and evaluate the peace of mind it will provide versus the added cost. Consider your financial situations as individuals, as well as the economic viability of your business if something were to happen to one of you.
If you and your partner/s are still unsure about whether or not acquiring partnership protection insurance is a step in the right direction, ask a trusted financial adviser (one unaffiliated with an insurance company) for their advice and go from there.