Partnership Protection Insurance: Protecting Professional Practices

Law firms, accountancy practices, medical groups, architectural studios, engineering consultancies — professional practices are built around people. The departure of a founding partner, whether through retirement, death, or incapacity, can threaten the stability of the entire enterprise if the business has not planned for it.

This guide covers the specific risks facing partnerships and limited liability partnerships (LLPs), the protection mechanisms available, the professional practice valuation challenge, and what sole practitioners should consider.

The Death of a Partner: What the Law Says

Under the Partnership Act 1890 — the default legislation governing partnerships in the absence of a specific partnership agreement — the death of a partner dissolves the partnership. The entire business must be wound up, its assets realised, debts paid, and the surplus distributed among the partners (and the deceased's estate).

In practice, few modern partnerships intend to operate under the Partnership Act 1890's default rules. Most professional practices have a written partnership agreement that modifies or replaces these rules — specifying, for example, that the partnership continues despite the death of a partner.

However, even with a well-drafted partnership agreement that prevents automatic dissolution, significant problems arise:

The deceased's capital account: The partnership must repay the deceased's capital contribution to the estate. This may represent a significant sum — particularly in capital-intensive professional practices with expensive premises or equipment.

The deceased's share of profits: The estate is entitled to the partner's share of profits up to the date of death. In a good year, this can be substantial.

The deceased's interest in work in progress: Professional practices typically carry significant unbilled work. The estate may have a claim on the deceased's proportion of this.

An unwanted new partner: If the deceased has passed their interest to their estate under their will, the beneficiaries may technically have certain rights as "incoming partners" or creditors — creating a relationship that nobody wants.

Without protection insurance to fund the purchase of the deceased's interest, the remaining partners may lack the personal resources to buy out the estate. The business is then in a precarious position.

The Cross-Option Agreement for Partnerships

The solution for partnerships mirrors the shareholder protection structure used by companies: a cross-option agreement (sometimes called a "buy-sell agreement" in the partnership context) combined with life assurance.

The cross-option agreement gives:

• The remaining partners a call option: they can choose to buy the deceased partner's interest from the estate
• The estate a put option: it can choose to sell the deceased partner's interest to the remaining partners

The options are not obligations — this preserves the availability of Business Property Relief on the deceased's partnership interest (partnership interests in trading businesses can qualify for 100% BPR, subject to the same investment asset and excepted asset caveats that apply to company shares). Note that from 6 April 2026 the 100% rate of BPR (and agricultural property relief) is capped at a combined £2.5 million of qualifying assets per estate (per person), with relief above that threshold reduced to 50%. The cap was originally announced at £1 million in the October 2024 Budget and raised to £2.5 million in December 2025; it is transferable between spouses and civil partners. For practices with substantial qualifying value, this cap should be factored into both the protection sum assured and the wider estate plan.

The insurance is structured with each partner owning a policy on their own life, written in a trust benefiting the other partners. On death, the trust pays out to the surviving partners who use the funds to exercise the call option and purchase the deceased's interest from the estate.

Partnership agreement review: Before implementing partnership protection, the existing partnership agreement must be reviewed by a solicitor to ensure there are no conflicting provisions — for example, a mandatory buy-sell obligation already in place (which could compromise BPR), or ambiguous provisions about what happens to a deceased partner's interest.

The LLP Position

A Limited Liability Partnership (LLP) is a distinct legal entity from a traditional partnership. Members of an LLP have interests in the LLP rather than a proportionate interest in the assets. The LLP has its own property, contracts, and liabilities.

LLPs are governed by the Limited Liability Partnerships Act 2000 and by the LLP members' agreement. Unlike traditional partnerships, an LLP does not automatically dissolve on the death of a member — the entity continues. However, the deceased's interest must still be dealt with.

The protection approach for LLPs is similar to that for companies:

• A cross-option agreement between the LLP members
• Each member's life is insured in trust for the other members
• On death, the trust funds the purchase of the deceased's membership interest from their estate

The BPR analysis for LLP interests mirrors that for company shares: a trading LLP's membership interests can qualify for 100% BPR, subject to the £2.5 million combined cap on 100% relief that applies from 6 April 2026 (with 50% relief above the cap; the cap was originally announced at £1 million and raised to £2.5 million in December 2025). Investment LLPs or mixed LLPs require specific analysis.

Valuing a Professional Practice: The Goodwill Problem

The most challenging aspect of partnership protection is valuation. Professional practices are typically worth far more than their tangible assets — the value lies in the client relationships, the firm's reputation, the work in progress, and the referral network. All of this is "goodwill."

The problem with goodwill in professional practices is that it is highly personal. If the founding partner dies:

• Clients may move to another firm they know personally
• Referrers may redirect business elsewhere
• Staff may leave, taking client relationships with them

The goodwill may therefore be substantially less valuable in the hands of the surviving partners than it was while the deceased was alive. A professional practice might be valued at two times annual fee income — yet on the death of the founding partner who generated half that income, the actual realisable goodwill may be a fraction of the paper valuation.

This creates a tension in setting the sum assured for partnership protection:

• Set it too high: the remaining partners over-pay for a diminished interest
• Set it too low: the estate is under-compensated

The partnership agreement should address this by specifying the valuation method (net asset value, fees multiple, profit multiple, independent valuation) and the treatment of "personal goodwill" (goodwill tied to the deceased partner personally, which may be carved out from the purchase price).

Types of goodwill in professional practices:

• Practice goodwill: reputation, brand, systems, and recurring clients not dependent on any individual — transferable and should be included in the purchase price
• Personal goodwill: relationships held exclusively by the deceased — typically non-transferable; reasonable to exclude or discount in the valuation

A specific valuation formula — agreed in advance, reviewed annually, and written into the partnership agreement — reduces the scope for dispute at the worst possible time.

Professional Indemnity Insurance: A Separate Issue

Professional indemnity (PI) insurance covers claims made against the practice for professional negligence. It does not provide business continuity protection on the death of a partner.

However, PI has an interaction with the death scenario: after a partner dies, the firm may face claims arising from that partner's work. The firm's PI policy typically covers these claims (subject to the policy wording and run-off provisions). Ensure that the PI cover is reviewed following the death of a partner and that run-off cover is in place if necessary.

The Sole Practitioner: Different Needs, Different Tools

A sole trader or sole practitioner — an individual practising without a partner — faces a different set of planning challenges on death:

No partner to buy the interest: There is no one to buy the business. The sole practitioner's executors must either find a buyer (which may take months), appoint a manager to run the practice temporarily, or wind it down.

Executor as manager: In some professional practices (solicitors, for example), the SRA has provisions for the appointment of a temporary manager following the death of a sole practitioner. This requires advance planning — registering with the SRA, identifying a nominated manager, and ensuring the practice management information is accessible.

The business will: A sole practitioner should have a specific "business will" or provisions in their main will addressing the fate of the practice — who manages it, who can sell it, and who benefits from any proceeds.

Protection for the family: A relevant life policy (if the sole practitioner trades through a limited company) or a personal life policy written in trust provides the family with financial security independent of the business's fate.

Key staff protection: If the practice has key employees whose departure on the owner's death would accelerate the collapse of client relationships, key person cover on those employees should be considered.

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Partnership protection involves legal, tax, and valuation considerations that are highly specific to the type of practice and the terms of the existing partnership or LLP members' agreement. Business Property Relief rules and HMRC practice can change. The information in this guide reflects the general position as at 2026. Always seek advice from a qualified financial adviser, solicitor, and specialist practice valuation expert before implementing a partnership protection plan.

How Global Investments can help

Global Investments advises professionals and practice owners on partnership and LLP protection, including coordinating with solicitors on cross-option agreements, working with specialist valuers to establish appropriate sum assured levels, and placing cover with insurers who have experience with professional practice risks. Contact us to discuss your practice's specific protection requirements.