A partnership wants its business to keep paying an income to the family of a deceased partner for a period after the partner's death, financed by life insurance. This arrangement is called:

Why A is correct

Salary continuation is a plan under which a business agrees to continue paying a portion of an owner's or employee's salary to the family for a set period after death or disability. Life insurance on the employee, owned and paid for by the business, provides the funds, so the family receives income during the continuation period. The coverage is designed to replace a portion of lost earnings rather than to reimburse the business. Salary continuation is one of the business uses of life insurance that supports both the employee family and the business's promise.

Why the other options are wrong

• B) Key person insurance pays the business itself for financial losses caused by the death of a valued employee; it does not pay the family a continuing salary. The family is the payee here, which makes the arrangement a continuation of salary rather than employer reimbursement.
• C) Buy-sell agreements fund the purchase of the deceased owner's interest in the business; they do not provide income to the family after death. A buy-sell transfer of the deceased partner's interest is a different goal from paying income to the family.
• D) Business overhead expense coverage is a disability product that pays the ongoing fixed expenses of the business, not a family income after death. Overhead expense coverage pays business bills during the owner's disability, not family income after death.

Memory hook

Salary to the family after death = salary continuation. Money to the business = key person.