The Use of Partnership Insurance

To an increasing extent copartners in any line of business find it advisable to insure their lives for the benefit of their firm. This may be done in one of two ways: either each member of the partnership may take out a separate policy on his life and make the same payable to the firm, or to the surviving member or members of the firm; or the insurance may be taken jointly upon all or any number of the partners the contract in this instance (called a joint-life policy) promising payment to the firm or its surviving partners in the event of the death of any one of the members covered by the policy. Under either method the premiums will be paid by the firm just as in the case of fire and other forms of property insurance. Should a dissolution of the partnership occur the joint-life policy, if it is so desired, may be converted into separate policies for equitable amounts upon the lives comprising the membership of the firm. If, on the other hand, the partnership insurance originally consisted of separate policies, the death of any partner would cause his insurance to be paid to the firm, the other policies continuing in force as before for the benefit of the business. Moreover, in case of dissolution the firm may surrender the policy for its cash value or the retiring partner may purchase his policy from the firm and continue it as his own insurance for the benefit of his estate or some designated beneficiary.

The numerous benefits derived from partnership insurance become apparent upon a consideration of the many difficulties that may confront a copartnership upon the death of one of the members of the firm. In most partnerships the several partners not only have supplied their respective portions of the necessary capital, but each is a specialist in some particular department. The death of any member of the firm, therefore, may involve not only the withdrawal of his share of the capital by his heirs but the loss of his skill and active cooperation. If, however, the deceased partner has been insured for the benefit of the firm, the proceeds of the policy will enable the surviving partners to pay off his interest to his heirs and carry on the business without delay and embarrassment during the time necessary to find a successor. Frequently the purchase of the deceased partner's interest becomes highly desirable, especially where the business is a specialized one, in order to prevent that interest from coming under the control of persons in the firm who may be entirely ignorant of the business and possibly hostile to its management.

Again, the death of a copartner, usually implying the loss of skill and the withdrawal of capital, often awakens doubt and fear among the firm's creditors with the result that at the very time when the deceased partner's heirs are clamoring for the withdrawal of their interest the firm is subjected to the embarrassing situation of having its loans called and its requests for credit refused. When bankers and other creditors, however, know that the deceased partners life was insured for the benefit of the firm, credit is immediately established and confidence takes the place of doubt The value of life insurance in this respect is well recognized by bankers, wholesale houses and commercial agencies. Banks at present almost invariably require prospective borrowers to reveal the amount of life insurance they carry for the benefit of their business. Commercial agencies also consider this matter important when reporting upon the financial standing of business, as was clearly indicated by the late Charles F. Clarke, President of the Bradstreet Company, when he wrote: "It is practically beyond a doubt that corporation insurance strengthens the credit of firms adopting it. The increased confidence which it establishes is recognized in the mercantile community and thus reflected through our "reports". This is merely one of many statements which might be furnished to indicate the growing conviction that partnership insurance is an agency which strengthens credit at all times and furnishes a quick asset when credit is impaired, which safeguards the deceased partner's interest and permits its withdrawal without embarrassment to the firm, which provides ready cash to pay off indebtedness and to replace in a measure at least the loss of the deceased partner's services, and which makes possible the retention of the management and control of the business by the surviving members.