Arranging cover for business partners

QQI am arranging life and critical illness cover for a firm of solicitors with multiple partners. I want to know if the benefits can be paid directly to the deceased partner's family and will they be eligible for tax relief themselves?It is customary to protect a business from the effects of damage to its property: the building, computer equipment, cars and so on. But protection for the people who are the single most important component of the business is often overlooked.

Arranging life and critical illness cover could make the difference between the business continuing with as little upheaval as possible, or it folding.

Although the cover could be written in trust for the partner's family the drawback is that the family would not be compelled to support the business. Let us assume the partner dies. The family would receive the sum assured and would also, presumably, inherit the deceased's share in the business. The remaining partners may not have the resources to buy out the family's share and could be faced with a member of the family wanting to take an active part in the business.

To avoid this happening, the usual route is for each partner to take out a policy on his or her own life, written under a business assurance trust for the benefit of the other partners. To ensure that changes in the partnership can be accommodated, the trust would show the beneficiaries as 'the participators for the time being in the firm'. It is important to note that the partner's family will not be classed as beneficiaries.

If the partner then dies, the sum assured will be paid to the remaining partners who would normally use it to buy out the deceased's share in the business. So the family receive money to the value of the deceased's share and the remaining partners are able to continue the business without unwelcome interference.

Whether the partners pay the premiums themselves or it comes out of the partnership account, there is no tax relief available to them as individuals.