Death in service cover

Employees are the life blood of the companies they work for, which is why many organisations provide staff with a range of benefits, including “death in service” cover. This can ease employees’ worries by reassuring them that their families will be well looked after if something happens to them, whether in the course of their work duties or elsewhere. Our guide explains how it works.

What is death in service cover and how does it work?

Death in service is usually offered as a company benefit and offers a payout if an employee dies while on the company’s payroll. The death can be work-related or not, and the payout is meant to help out the employee’s chosen beneficiaries following their death.

Why should I think about getting death in service cover?

If this is offered to you as a benefit by your job, that will likely be more economical than getting your own life insurance.

However, there are a few things to consider:

• Death in service payout is usually calculated as a percentage of your salary, so make sure this will be sufficient for your family’s needs should something happen to you.
• The benefit may fall under a discretionary trust, which means you may not know who will receive this benefit if you die.
• You cannot typically assign this benefit to cover mortgage payments, though your beneficiaries are free to use the payout for this purpose.

What is the average payout for death in service cover?

The payout for a death in service policy is usually worked out in accordance with your salary and is normally several times the annual figure.

Do I need life insurance if I have death in service cover?

This depends on your circumstances. If your predicted payout is likely to meet your family’s outgoings in the future, this cover may be enough.

However, bear in mind that you cannot assign this payout to pay off your mortgage (though the money can be used for this by the beneficiaries) and the policy usually doesn’t include critical illness cover, which offers financial assistance if you become seriously ill.

Is life assurance the same as death in service?

No. Death in service is offered as a company benefit to employees, while life assurance is a life insurance policy that individuals can take out for themselves.

Life assurance usually offers a higher payout and more benefits, like critical illness cover.

What happens to my pension if I die?

Some companies provide death benefits through the private pension scheme they offer. If this is the case, your beneficiaries should contact your pension scheme administrator for more information after you die.

Your beneficiaries will usually receive a payout relating to your pension, but this will vary by provider and type of pension arrangement. In most cases, as pensions are considered to sit outside your estate, your beneficiaries should be able to access your retirement savings without having to pay inheritance tax.

What happens if I die in service?

If you die while working for the company, your beneficiaries will receive a lump sum payout. The death does not have to be a result of duties carried out within your role – you simply need to be on the company’s payroll.

How does it work in practice?

Usually for death in service, the death doesn’t need to be related to the work you do for your employer.

So, for example, if you’re an accountant at a factory and you die in a car crash while driving to the supermarket, your beneficiaries will still receive a payout from your death in service benefit.

Pros and cons

Frequently asked questions

• What happens when employees leave the company?

  Death in service is only valid while the employee works for the company supplying it and can usually not be carried to a new employer.

  This is one reason to consider taking out a separate life insurance policy, as you cannot be sure you will continue to work for your current company long term.

• How long does it take to get a death in service payout?

  The payout can normally be made within 30 days of the insured person’s death.

  If the claim is straightforward and all the right documents are presented, it could be paid out within just 10 to 14 days.

• Is the death in service payout taxable?

  No, a death in service payout is tax-free. This is because the policy is kept in trust by the company and isn’t subject to inheritance tax.

• Will death in service cover an employees' mortgage?

  A payout from a death in service policy can’t usually be assigned to pay off a mortgage. However, your beneficiaries will be able to use some or all of the payout money for this purpose if they choose to do so.