An employer uses life insurance to fund a plan that will continue paying a deceased employee's salary to the family for a period after death. This arrangement is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Salary continuation is an employer-funded benefit that keeps paying an employee's salary — to the family after death or to the employee after disability or retirement — for a defined period. The employer owns and pays for life insurance on the employee to fund that obligation, and the death benefit replaces the salary stream the employer promised. It differs from key person coverage, which protects the business itself against the financial loss of a valuable employee, and from buy-sell and split-dollar arrangements, which fund ownership transfers or split premiums and benefits.
Why the other options are wrong
- B) Key person insurance pays the business, not the family; its purpose is to reimburse the company for lost revenue and disruption when a key employee dies.
- C) Buy-sell funding provides cash to purchase a deceased owner's business interest from the estate; it does not pay a salary stream to the family.
- D) Split-dollar splits premiums and death benefits between employer and employee — a different structure from a salary continuation promise.
Memory hook
Salary continuation = keep the paycheck flowing to the family. Key person = keep the company afloat.