When you have partners each person has their strengths and those strengths are what keeps the business successful and profitable.
What would happen if one of those partners were to die? Not only would you lose a friend and crucial member of the business, but now you have the issue of dealing with that person's estate. After all, they did own part of the business, right?
Typically the spouse or family members of the person that passed away don't have an interest in day to day operations of the business and would rather just sell the estate's portion of the business back to the other partners.
That's where key person life insurance comes in. Each partner buys life insurance on the other partner(s) and the business pays for it. If one partner were to pass away, then the other partner(s) now have enough funds to buy out the interest the deceased person had in the company. This way the remaining partners can choose how to continue running the business. For more information and an example where key person insurance was used, follow this link from Life Happens.