A business wants to continue paying an executive's salary for a period after the executive's death. The business will own the policy, pay the premiums, and receive the death benefit. This arrangement is a:

Why A is correct

A salary continuation plan provides continued income to a surviving family or designated beneficiary after a key employee dies, with the business owning the policy and receiving the proceeds to fund the continuation payments. Unlike key person insurance, which reimburses the business for its own financial loss, salary continuation directs funds to the employee's survivors as a promised benefit.

Why the other options are wrong

• B) Key person insurance protects the business against its own financial loss when a key employee dies; the business is the beneficiary to cover lost revenue, not to fund payments to survivors.
• C) A buy-sell agreement funds the purchase of a deceased owner's business interest from the estate; it does not continue salary payments.
• D) Split-dollar splits premiums, ownership, or death benefits between the employer and employee; the purpose here is simply continuing salary.

Memory hook

Salary continuation = keep paying the family. Key person = reimburse the business. Different beneficiary, different purpose.