Why LLPs need their own approach
An LLP gives its members limited liability, like a company, while taxing them much like partners. That mix trips people up when they look at protection. Relevant life cover and executive income protection are designed for employees, and a member of an LLP is not normally an employee of it.
What matters most is your LLP agreement. It should say what happens to a member's capital and share of profits if they die, become seriously ill or retire. If it says nothing, the default rules may not suit anyone, so many firms update the agreement at the same time as arranging cover.
Funding the purchase of a member's interest
When a member dies, their family may be entitled to the value of their interest. Most continuing members would rather pay that out than share the firm with someone who does not work in it. Member protection gives them the cash to do so.
The usual arrangement mirrors partnership protection. Each member insures their own life for the value of their interest and places the policy in a business trust for the other members. An option agreement, or suitable wording in the LLP agreement, sets out how the sale happens. Critical illness cover can be added so a seriously ill member can sell up as well.
Key person cover and personal policies
The LLP is a legal entity in its own right, so it can own a policy on a member whose loss would hurt fee income. The payout goes to the firm and can fund recruitment or carry the business through a drop in billing.
For your own household, income protection matters more than many members expect. Your drawings depend on the firm's profits and your ability to work, and there is no employer sick pay behind them. A personal policy pays a monthly benefit after the waiting period you choose.
- Member protection: funds a buyout of a member's interest
- Key person cover: protects the firm's profits
- Personal income protection: replaces your drawings while you recover
- Personal life cover in trust: looks after your family directly
Serious illness and retirement
A member who becomes seriously ill may want to step back and draw out their capital. If critical illness cover sits inside the member policies, the others have money to buy that interest. The LLP agreement then needs an option that applies on illness, usually one that only the ill member can trigger.
Retirement works differently. No policy pays when a member retires, so firms usually fund those exits from profits or capital over time. When a member leaves, their buyout policy can often be cancelled or taken on personally, and the remaining members should check whether their own cover still matches the value of their interests.
How Hi Tomorrow helps LLP members
We look at the LLP agreement, how capital and profits are shared, and how many members there are. That shapes the cover each member needs and the structure that fits. Each member talks to us in confidence about their health.
We compare policies from the insurers on our panel, arrange the business trusts and work with the firm's solicitor and accountant so the cover and the agreement line up. When members join or retire, we can help you review the policies so they stay in step with the firm.