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Partnership protection insurance, and the agreement behind it
Partnership protection insurance gives the remaining partners, or LLP members, the money to buy the share of a partner who passes away or becomes critically ill, so the business stays with the people running it (Royal London ↗).
Royal London says it works only with three things together: an agreement, the insurance and a tax-efficient structure (Royal London ↗).
Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.
Why partners need partnership protection insurance
Under the Partnership Act 1890, subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death of any partner (Partnership Act 1890 ↗).
Royal London says a surprisingly large number of partnerships and LLPs have no partnership or membership agreement, the document that says what happens on retirement, death or ill health (Royal London ↗).
Royal London's business trust is designed so the surviving owners have the funds to buy the share and do not end up with an unintended business partner, such as a surviving spouse, child or third party (Royal London ↗).
Agreement
How the share is valued, and who may buy
Set out in the partnership or membership agreement, or a separate deed.
Insurance
Cover for the value of each share
Life cover, critical illness cover or both.
Structure
A tax-efficient set-up
Usually each partner’s own-life plan in a business trust.
The three elements are Royal London's (Royal London ↗).
Automatic accrual, buy and sell, or cross option
Royal London says any existing partnership or membership agreement must be reviewed first, so the protection arrangement does not conflict with it (Royal London ↗).
Whichever type is used, it says the agreement should name the partners, describe the business, undertake to keep enough cover and review it, say how and by whom the business is valued, and say how any shortfall is paid (Royal London ↗).
Summarised from Royal London's adviser guide (Royal London ↗). Take legal advice on the wording of any agreement.
Own life in trust or life of another
Royal London says life of another is the simplest option, with no trusts or premium equalisation, but every partner needs a plan on every other partner: four partners need twelve plans, and proving insurable interest can be a problem (Royal London ↗).
With own life in trust, four partners need four plans and four trusts; new partners can be included later, and a partner who leaves can usually have the plan assigned back (Royal London ↗).
Royal London's business trust is discretionary only, and partners who are not taking part should be excluded so the arrangement stays commercial (Royal London ↗) (Royal London ↗).
Why premiums are equalised
Partners differ in age, health and the size of their stake, so their premiums differ (Royal London ↗).
Royal London says that unless premiums are equalised, the differences could be treated as transfers of value for inheritance tax, and a claim could raise a charge under the gift with reservation rules (Royal London ↗).
The partners then settle the differences between themselves, using a formula Royal London sets out (Royal London ↗).
Price
Each partner’s plan is priced
Age, health and stake all change the premium.
Formula
A commercial share is worked out
Each partner pays for the benefit they may receive.
Settle
The partners settle the differences
So no partner is giving value to another.
From Royal London's adviser guide (Royal London ↗). We do not calculate premiums or tax.
How partnership protection is taxed
HMRC says premiums a partner pays for life, accident or sickness cover on themselves or a partner are not allowable deductions (HMRC ↗).
The rules below are Royal London's reading; an accountant or tax adviser can say how they apply to you (Royal London ↗).
Setting it up, step by step
We do not sell or arrange insurance.
These steps follow Royal London's guide (Royal London ↗), and an FCA-authorised adviser can set up the policy and the trust; the FCA tells consumers to check a firm on its Firm Checker (FCA ↗).
Review
Read the partnership or membership agreement
Make sure the new arrangement does not conflict with it.
Value
Agree how each share is valued
And who values it, and how a shortfall is met.
Agree
Choose the agreement
Automatic accrual, buy and sell, or cross option.
Insure
Write the cover
Own life in trust, or life of another.
Review
Keep cover in line with value
The agreement should commit everyone to reviewing it.
Which page do you need?
Neighbouring guides, each on its own question.
Check it for yourself
Every claim on this page is our summary of one of the documents listed here.
We last checked them against the live sources on 24 October 2026.
The documents are the authority, not this page.
Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.
- Royal London: partnership protection ↗The three elements, the agreements, how cover is written, premium equalisation
- Royal London: partnership protection tax ↗Premiums, chargeable events, the discretionary trust, capital gains tax
- Royal London: business trust ↗The discretionary trust for partner, member and shareholder protection
- Partnership Act 1890, section 33 ↗Dissolution on the death of a partner, subject to agreement
- HMRC Business Income Manual ↗Partners’ premiums on their own or a partner’s life are not allowable
Partnership protection, answered
Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.