Dubai: When a business partner dies, problems may flare up between inheritors and the surviving partners about the deceased’s shares and whether heirs are cap-able of running the company — but partnership insurance could prevent these disputes, according to insurance brokers and will executors.

“You can give a share of the business to your wife, but if she has no clue how to run the business, then what happens?” said Mohammad Marria, Managing Director of Just Wills, at a seminar on wills and insurance yesterday.

Most spouses are incap-able of running the company but claim rights to the deceased’s shares because they want the cash, he said.

“Partnership insurance creates liquidity so when a partner dies, the family gets the cash equivalent of the shares instead of partners putting their hands in their pockets for the money. It’s in everyone’s interest,” Marria added.

One scenario is that the family takes the money and the shares go to surviving partners, but this depends on the deceased’s will. “It is important for partners to discuss this so the company does not fall apart,” Marria said.

Training cost

Partnership insurance has still not caught on in the UAE as it has in the West, experts said. “Not many people are aware of it. They need to be educated. They don’t know that the concept exists,” according to Marria.

Companies can also opt for key man insurance against the death of a key partner, employee or manager whose skills draw in a major chunk of the revenue. “If a company loses that key person, the skill and share of business is gone, and the costs have to be absorbed. The company can recuperate through insurance and cover the cost of training a new person,” said Albert Rodrigues, Managing Director of Millenium Insurance Brokers.

Key man insurance can cost from $1,000 (Dh3,678) to $40,000 a year depending on the age, health and importance of the key person, he said. “It’s not popular in the UAE … companies think of it as an added cost,” Rodrigues added. “It’s up to companies to justify [the cost] but what if a key employee dies, how do you replace the revenues?”

Increasingly, more banks are insisting on key man insurance for companies they are financing, according to Ashok Bablani, a senior manager at an international bank that he did not wish to name. “It is very important and we would recommend it to clients,” he said.