Presentation on theme: "Partnership Insurance. What is Partnership Insurance? Continuous co-operation of each partner very important in a partnership firm. If a partner dies."— Presentation transcript:
What is Partnership Insurance? Continuous co-operation of each partner very important in a partnership firm. If a partner dies prematurely the partnership firm may be required to be dissolved.
What is Partnership Insurance? The deceased partner’s legal heirs may ask for their share from surviving partners. In that case the question arises as to how the firm or surviving partners can arrange for purchasing the stake from legal heirs of deceased partner. Partnership insurance can help to avoid such a situation. The firm can purchase insurance under partnership insurance on the lives of all the partners and in the event of premature death of any partner, the firm will receive the insurance proceeds. This fund can be utilized for settling the deceased partner’s share without disturbing the working of the firm.
Eligibility conditions for Partnership Insurance All the insurable partners are required to be insured. Each partner will be insured separately for the amount equal to his/her Capital amount standing to his/her credit as per last assessment year. Keeping in view the growth of the firm, insurance amount of each partner will be increased by giving credit for the Goodwill of the firm. Calculation of goodwill Goodwill of the firm will be equal to total net profit of the last three assessment years. The above goodwill will be proportionately added to the capital of each partner depending on his share of profit in the firm.
Requirements for Partnership Insurance Letter of Authority in favour of partner signing the proposal. Copy of Deed of Partnership duly attested by the partner authorized to sign insurance proposal. Copies of Audited Balance Sheet & Profit & Loss A/Cs for last 3 yrs. Copies of ITRs of the firm for preceding 3 years duly attested by the authorized partner. The copy of audited Balance Sheet containing schedule of partner’s capital A/cs. The policy has to be kept unassigned. A clause should be provided in the partnership deed to go in for insurance on the lives of the partners. A supplementary deed is required to include the above clause.
Tax Benefits Premiums paid by the partnership firm will be eligible to qualify as business expenses under Sec.37 (1) of the Income Tax Act. Premiums paid by the partnership firm are not a perquisite in the hands of the partner. Maturity/death claim amount received by the company will be added to the business income of the partnership firm in the year of receipt.
What if Partnership firm is dissolved before death of partners? The firm has the following choices: a) Surrender the policy b) Firm can assign the policy to the partners, as policy has no surrender value.