Every employer wants cost-effective ways to keep key people. Two of the simplest non-qualified benefits both use life insurance: the executive bonus plan, the most common, and the death benefit only (DBO) plan, the most overlooked. The biggest difference between them is control if the executive leaves.
Key takeaways
- In an executive bonus plan the executive owns the policy; in a DBO plan the employer owns it.
- Executive bonus premiums are deductible to the employer and taxable to the executive; DBO premiums aren’t deductible or taxable to anyone.
- DBO benefits paid to the family are deductible to the employer and taxable to the beneficiary, and employer-owned coverage must meet notice and consent rules.
Both plans keep key people with life insurance. The difference is who keeps control if the executive walks out the door.
How each plan works
Executive bonus: the employer pays premiums on a policy the executive owns. The executive names the beneficiary and keeps the policy if they leave.
Death benefit only: the employer promises to pay a benefit to the executive’s named beneficiary if the executive dies while employed. The employer buys and owns a policy to fund that promise. Either plan can use permanent or term insurance. With DBO, many employers roll the policy out to the executive at retirement; even term coverage can be valuable then because of conversion privileges, especially if the executive has developed health issues.
Side-by-side comparison
- Policy owner: Executive bonus, the executive. DBO, the employer.
- Who pays premiums: The employer in both.
- Premium taxation: Executive bonus premiums are generally deductible to the employer and taxable to the executive. DBO premiums are not deductible and not income to the executive.
- Death during employment: Executive bonus proceeds go income-tax free to the executive’s beneficiary. Under DBO, the employer generally receives proceeds tax-free (if employer-owned life insurance notice and consent requirements are met), then pays the promised benefit, which is deductible to the employer and taxable income to the beneficiary.
- After the executive leaves: Executive bonus, the executive keeps the policy. DBO, no benefit to the family; the employer still owns the policy.
Choosing between them
Executive bonus is simple and portable, which makes it a strong recruiting and reward tool, but it offers little retention on its own unless a restrictive endorsement or vesting schedule is added. DBO gives the employer more control and a strong incentive for the executive to stay, since the benefit ends with employment. See our articles on executive bonus plans and single vs. double bonus.
Contact us to talk through executive benefits and the business planning conversations you should be having with every business owner client.
Frequently asked questions
What is a death benefit only plan?
An employer promise to pay a benefit to an employee’s beneficiary if the employee dies while employed, usually funded by a company-owned life insurance policy.
Are DBO plan benefits taxable?
The benefit paid to the family is generally taxable income to the beneficiary and deductible to the employer. The employer usually receives the policy proceeds tax-free if employer-owned life insurance rules are followed.
Which plan is better for retaining key employees?
A DBO plan typically offers stronger retention because the benefit ends if the executive leaves. An executive bonus plan can add retention with a restrictive endorsement or vesting schedule.
Reviewed by Tim Fuller on 2026-09-26
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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