Don’t ‘Die Without a Will’: Life Insurance for Your Partnership

Don’t ‘Die Without a Will’: Life Insurance for Your Partnership

I was talking to my business partner the other day, and I didn’t like the sound of that cough.

All this wheezing and hacking – what gives, I asked? She ho-hummed me away, but I thought: she’s been sounding poorly for ages. Always aching and complaining; everything she eats makes her sick. Perhaps the latter involves her penchant for foie gras, champagne and McDonald’s – she denies it, but she once dropped her purse and a burger spilled out like a telltale murder weapon.

The symptomatic trail is taking us nowhere felicitous, I thought. My partner’s only 55-ish, but acts much younger, as she likes to say. I asked her if she had life insurance, and she had the nerve to feign cool and reply, “What for?”

I’m one to talk. Years ago, after performing a comprehensive physical on me, my MD quipped, “despite all appearances, you’re quite healthy.” You can’t beat a French doctor for drollery. I’ve crossed the sixth-decade barrier with all vices eliminated, and apart from questioning the point of living without those dear companions, I’m doing pretty well – except that I hurt all over, daily. At 61, there’s no one to fool.

Our third partner is in his vigorous 40s, practices yoga, eats vegetarian (poor beast), writes exquisite poetry and once ran a huge translation project where he didn’t have command of the source language, but finished early and snagged a bonus. No matter how infuriating, we need partners like this. I can’t imagine him slipping away suddenly, unless he was struck by a meteorite, or perhaps found himself living in the epicenter of a pandemic. Just how likely would that be for a fellow residing in Brooklyn, NY?

We launched our company to facilitate our freelance careers – lifestyle journalism, financial editing and translation – and help each other find projects. In my experience, it’s common to fish for an editing job and find the client needs a ghostwriter for the annual report, or 2,000 pages of Mongolian translated into Italian – nothing fanciful here, that’s the one my partner tackled. A unified website makes everything easier and we thought it would take only a phone call and three virtual handshakes to build; nothing to it.

We had it all wrong: you can’t do it slapdash. Each partner needs to define specific goals, lay out their strengths and admit to weaknesses. Everyone’s role must be codified in the shareholder agreement: Miss B hunts for corporates; Monsieur D provides vision and drive; Monsignor T (they call me) keeps them from each other’s throats. We’ve been friends for so long, it’s a miracle we’re even alive.

I will not lie: we haven’t yet purchased company life insurance policies, but we’re examining it. In principle it’s simple, and there are two basic ways to proceed. If, say, there are two partners – the most common scenario – a cross-purchase agreement, guaranteeing the surviving partner sole purchase rights to the decedent’s shares, should be concluded. Then, each partner can buy a life insurance policy sufficient to buy out the other’s shares. More on this later.

This approach can be used if there are multiple partners, but it’s often easier to formulate a stock redemption plan and have the company insure all partners sufficiently to make the same move: a partner passes away, and the company uses the payout on the life policy to buy the decedent’s shares and pass them into the hands of the survivors.

It’s a simple strategy, but a few things need consideration before plunging ahead.

First principles: how much should the life policies be worth? Value the company, divide by three in our case, and there’s the answer. Wait – the firm’s value changes quarter by quarter. A small shortfall can be made up with a partner’s own resources, but if the company’s value changes radically – or, more likely, evolves over time – if no one bothers to update the life policies, sudden death or incapacitation can turn the best-laid plans into real stinkeroos.

It’s so simple, so easy to forget: regularly value your company and update the life policies. That fiendish being lurking in the details wants to roast you in extremis; don’t let it happen.

Why is this so important? Logically, a partner’s heirs should have no interest in running the company, so obviously they would eagerly want to sell out to the surviving partners. Ah, what a surfeit of red-flag words! Logic, so lonely today, with few followers; but havoc, a word terrifyingly bereft of ancient Greek roots, there’s a real grabber. If you want your legacy destroyed, trust your heirs to behave sensibly in the breach.

I apologize for my bluntness, but the truth is commonly unpleasant. I’m a partner in a tiny little company it took us months of honest sweat, toil and imagination to create. It means the world to us; it is us. Unless you favor a soap opera ending, with the final episode featuring the trite, ‘oh money – who needs it, anyway’ post-catastrophe wrap-up, do your partners a favor. Hold the difficult talk; force your agreement into writing; call the insurers post-haste. Pardon me while I fly off to take my own advice.

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