Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Under a salary continuation plan, what is the purpose of the life insurance coverage?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
A salary continuation plan is an employer-sponsored arrangement under which the business promises to continue an employee's salary or benefits for a stated period after the employee's death. Life insurance is used to fund that promise: the employer owns a policy on the employee and receives the death benefit, which it uses to make the continuation payments to the family. The plan creates a contractual obligation on the employer, distinguishes it from a pure gift, and the funding ensures the business has the cash available when the employee dies.
Why the other options are wrong
- A) The death benefit is not a loan; it is a policy payment used by the employer to fund salary continuation, and tax treatment follows the employer's receipt and payment.
- B) If the employer simply kept the proceeds with no obligation to the family, the plan would not be a salary continuation plan at all.
- C) The insurer never employs family members; its role is limited to paying policy proceeds under the contract.
Memory hook
The policy's job is to keep the paycheck flowing after the employee is gone.