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.

  1. Which terms should be included in a partnership agreement?

    Understand what specific terms should be included in a business partnership agreement and how each affects the partners in ... Read Answer >>
Related Articles
  1. Small Business

    What is a Partnership?

    A partnership is an organization where two or more owners operate a business.
  2. Insights

    Limited Liability Partnership (LLP): The Basics

    LLPs are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
  3. Small Business

    4 Business Partnership Mistakes To Avoid

    When two or more people get together to run a business, the odds of conflict and financial risk increase without the proper controls in place.
  4. Trading

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  5. Small Business

    How To Create A Business Succession Plan

    Make sure the business you built continues to thrive long after you've left the helm.
  6. Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
  7. Insurance

    How Much Life Insurance Should You Carry?

    Learn how much - if any - insurance you really need.
  8. Financial Advisor

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  9. Insurance

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  1. General Partner

    Owners of a partnership who have unlimited liability. A general ...
  2. General Partnership

    A arrangement by which partners conducting a business jointly ...
  3. Limited Liability

    A type of liability that does not exceed the amount invested ...
  4. Company

    An entity formed to engage in a business. A company may be organized ...
  5. Form 1065

    A tax document used to report the profits, losses and deductions ...
  6. Buy And Sell Agreement

    An approach used by sole proprietorships, partnerships and closed ...
Hot Definitions
  1. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  2. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  3. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  4. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  5. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
Trading Center