Partnership Life And Health Insurance

Definition of "Partnership life and health insurance"

Protection to maintain the value of a business in case of death or disability of a partner. Upon the death or long-term disability of a partner, insurance can provide for the transfer of a deceased or disabled partner's interest to the surviving partner according to a predetermined formula. Funding can be achieved through either of two plans:

  1. Cross Purchase Plan each partner buys insurance on the lives of the other partners. The beneficiaries are the surviving partners who use the proceeds to buy out the deceased's interest. This plan can become complicated when there are more than two partners. For example, if there are four partners, partner A will buy insurance on the lives of partners B, C, and D. The procedure would be repeated with partners B, C, and D. Total policies would be 12.
  2. Entity Plan because of the number of policies required, the entity plan is most often used for buy-and-sell agreements by larger partnerships. The partnership owns, is beneficiary of, and pays the premiums on the life insurance of each partner. When one of the partners dies, the partnership as a whole purchases the deceased partner's interest. Premiums are not tax deductible as a business expense. If whole life insurance is used, the cash values are listed as assets on the balance sheet of the partnership and are available as collateral for loans.
Partners use insurance to fund other objectives. In personal service partnerships of doctors, lawyers, and accountants, when it is important to retain a deceased partner's name on the title of the firm, the heirs may agree to this for a share in subsequent partnership profits. An income continuation insurance plan funded through life insurance by the partnership, serves this purpose. Disability of partner buy and sell insurance can be used by a partnership to provide income for the firm if a partner becomes disabled. The policy would pay a monthly income to the partnership for the duration of the partner's disability.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Organization founded in 1993, the thesis of which is to apply quality management principles to insurance functions. To this end, the organization is involved in insurance industry-wide ...

Uneven quality of a product made by the same manufacturer. A manufacturer is responsible for producing products of similar quality, and can be held liable for those that deviate materially ...

Total amount of insurance on an insurer's books at a particular time. ...

Measure of the sensitivity of the insurance company's liability for the resultant higher expense rates than charged for in the premium. ...

Section of a policy specifying: parties to the contract (the insurance company and the person or business to be insured); terms of the policy when it goes into force, and when it ends; ...

Insured, or an applicant for insurance, with lower expectation of incurring a loss than the standard applicant. For example, an applicant for life insurance who does not smoke can usually ...

Addition to boiler and machinery insurance that covers loss to property or equipment caused by an interruption of power by a public utility. Coverage is available either on an hourly or ...

Sum total of the annual effective rate of return earned by an owner of a bond if that bond is held until its maturity date. This effective return includes the current income generated by ...

Amount established by an insurance company, but not required by state law, for any of a number of reasons, such as a reserve for payment of future dividends. A voluntary reserve is likely ...

Popular Insurance Questions