A:

Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility of one partner dying or becoming incapacitated. You can use a cross purchase agreement, in which you and your business partner each purchase a life insurance policy on the other and list yourselves as the primary beneficiary.

If you have more than two partners, consider buying entity insurance plans. Under entity plans, there are cross insurance policies for each partner from all of the other partners; the death of any one partner funds the buyout of that individual's share.

Unlimited Liability in General Partnerships

A general partnership is distinguished from other forms of business liability relationships, such as a limited liability partnership or a corporation. If you are part of a general partnership, then you have unlimited personal liability for all business debts and the actions of all other general partners.

There are very few circumstances where it is advisable to prefer a general partnership over other types of business arrangements. Regardless of your reasons, it's important to protect yourself against liability through partnership insurance plans.

Cross Purchase Agreements

This is the most common type of general partnership liability protection. Cross purchase agreements don't safeguard you against product liability, but they do offer a way to continue if general liability is realized and your partner is no longer able to contribute to the business.

Consider what kind of cross purchase agreement you want. Disability buy-sell insurance plans only cover disability of one partner, not death. You may want some form of life insurance instead.

The death benefit on the insurance should at least be equal to the value of your partner's equity interest. In the event of a death or dismemberment, you can use the insurance claim to buy out the partner's interest and keep the business in operation.

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