SURVIVORSHIP POLICY
The partners may take out a survivorship policy to safeguard against future cashflow problems incase a partner dies or the business is dissolved. E.g. incase a partner dies, then the remaining partners may wish to continue business but they may experience cashflow problems because they have to pay the estate of the deceased partner.
On dissolution, again the partners may not be able to sell off all the assets on time and thus pay off the creditors.
Therefore, under a survivorship policy the insurance will pay the partners the sum assured on the death of a partner or the surrender value when the policy is terminated because the business is being dissolved.
The premiums paid on such a policy may be treated in several ways:
- As an asset
- As an expense and an asset