Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A small business owner wants the business to continue paying the owner's family a specified income for a set number of years after the owner's death, so that the family's standard of living is maintained during the transition. Life insurance is used to fund this promise. This arrangement is known as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Salary continuation is an arrangement in which a business agrees to continue paying the income of a deceased (or disabled) owner or key employee to the family for a specified period, and life insurance on the owner funds that obligation. The business is the owner and beneficiary of the policy, and the proceeds are used to make the promised payments. It is a way to provide a personal benefit to the family while satisfying a business commitment.
Why the other options are wrong
- B) Deferred compensation pays the executive during retirement, not the family after the executive's death.
- C) Split dollar is a cost-and-benefit sharing arrangement between an employer and an employee, not a family income promise.
- D) Business overhead expense insurance pays the firm's ongoing fixed expenses during an owner's disability, not the owner's family income after death.
Memory hook
Salary continuation keeps the family's income coming after the owner dies. Fund it with life insurance on the owner.