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

Agreement by an insurance company to pay a predetermined amount, as indicated in an insurance policy, should a loss occur. ...

Coverage providing funds for maintenance of a business as closely to normal as possible in the event of a loss of a key person, owner, or partner. ...

Choice of a lump sum payment for an injury incurred instead of a series of periodic payments, available under a health insurance policy. ...

Individual appointed by the insurance company as an independent contractor. The agent receives various expense allowances for office-associated expenses and direct commissions on products ...

Arrangement whereby the insured pays the insurance company a relatively small monthly premium payment. In exchange for this premium payment, the insurance company processes and pays claims ...

Form of excess of loss reinsurance under which each year's reinsurance premium is determined by the amount of the cedent's excess losses for a given period of time, usually three or five ...

Employee benefit plans under which both the employee and the employer pay part of the premium. Contribution ratios vary. For example, an employer contributes two dollars for every dollar ...

Same as term Direct Response Marketing: method of selling insurance directly to insureds through a companies own employees, through the mail, or at airport booths. The company uses this ...

Means of projecting the costs of pension plans on a level basis over a specified future period of time. The actuarial value of each employee's future benefits to be paid at retirement is ...

Popular Insurance Questions