Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An employer establishes a plan in which the employer promises to continue paying a key employee's salary during a period of disability or to the employee's family after death, with the benefits funded by life insurance owned by the employer. This arrangement is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A salary continuation plan is an employer-funded arrangement that continues income to an employee during disability or to the employee's family after death. The employer owns and pays for the life insurance, is the beneficiary, and pays the promised continuation benefits from its own funds. It is a form of nonqualified deferred compensation focused on income replacement, distinct from retirement plans and from buy-sell funding between owners.
Why the other options are wrong
- B) A qualified retirement plan is tax-qualified and governed by ERISA and IRC rules; salary continuation is nonqualified.
- C) A buy-sell agreement funds the purchase of a deceased owner's business interest, not employee income continuation.
- D) An IRA is an individual retirement savings vehicle, not an employer income-continuation arrangement.
Memory hook
Salary continuation = the employer keeps the paycheck coming during disability or after death, funded by its own life policy.