A business owner wants a valued employee's surviving family members to receive income after the employee's death, funded by life insurance the business owns. This arrangement is called a:

Why A is correct

A salary continuation plan is an employer-funded benefit that pays income to a designated employee's family after the employee's death. The employer typically owns the life insurance policy and is the beneficiary, then uses the proceeds to pay the surviving family members the continuation benefit. It differs from key person coverage, which indemnifies the business itself for its own loss, and from an executive bonus plan, in which the employee owns the policy and premiums are taxable compensation to the employee.

Why the other options are wrong

• An executive bonus plan makes the employee the owner of the policy and treats the premiums as taxable compensation to the employee. Here the employer owns the policy and directs benefits to the family, so salary continuation is the correct label.
• Buy-sell agreement funding provides cash for a surviving owner to purchase the deceased owner's business interest from the estate. It does not provide continuing income to an employee's surviving family members.
• A business overhead expense policy pays a business's fixed operating costs when the owner becomes disabled. It does not pay income to an employee's surviving family members after death. This option therefore does not match the facts presented in the question and is not the correct answer to select.

Memory hook

Salary continuation means the business owns the policy and the employee's family collects the income.