Question

What is Joint Life Policy?

Hint:

Remember: JLP ensures the firm has ready funds to pay the deceased partner’s share without disturbing working capital.

Answer 1

Step 1: Define the concept.
A Joint Life Policy (JLP) is an insurance contract in which two or more partners of a firm are insured under one policy. The premium is paid by the firm.
Step 2: Purpose.
It provides financial support to the firm upon the death of any partner. The amount received can be used to pay the deceased partner’s legal representatives, settle his capital account, or strengthen the firm’s finances.
Step 3: Accounting treatment.
- Premium may be treated as \emph{an expense} (debited to P& L). - Alternatively, a \emph{Joint Life Policy A/c} may be maintained, shown as an asset. - At death/maturity, the policy proceeds are credited to partners’ capital accounts in the profit-sharing ratio.
Step 4: Key feature.
The policy covers the lives of all partners collectively, unlike individual policies that cover only one person.
Final Answer: \[ \boxed{\text{A life insurance policy jointly taken by all partners to secure the firm against loss at a partner’s death.}} \]