What are the benefits of death in service insurance?

The benefits of providing death in service insurance

Coming up with a benefits package that is relevant and motivates employees can be a difficult task, especially as there may be budget limitations to navigate. Death in service insurance could offer several benefits to both employers and employees.

Benefits for employers

  • It's a low-cost way of providing a high value benefit for your employees.
  • It shows employees you care about them and their families, having a potentially positive impact on staff morale and loyalty to the company.
  • It makes you more attractive to potential employees during the recruitment process.
  • It can help you retain good quality staff as part of an employee benefits package.
  • The premiums paid for death in service insurance are usually considered a business expense, which reduces the cost to you as the employer (and makes the scheme tax-efficient).

Benefits for employees

  • Employees get the peace of mind of knowing their loved ones will be looked after financially in the event of their death.
  • Provides employees with life insurance cover at no cost to them.
  • Staff don't usually have to undergo medical examinations for death in service insurance, although in some instances providers may ask for people to undergo medical examinations.
  • Providing the scheme is registered with HMRC or set up in trust, the money they receive from the insurance policy is tax-free (no inheritance tax needs to be paid on it) subject to the lifetime allowance.
  • Trustees may be able to pay out quickly which makes things easier for families and loved ones during a highly stressful period.
  • Staff morale may increase as they appreciate their employer more.

Considerations for employers when setting up a death in service insurance scheme

Before deciding whether to take out death in service insurance as a benefit for employees, there are several things you might want to consider to ensure you enter into the right scheme for your business, such as:

  • Whether you would offer the benefit to all your staff.
  • The level of cover you want to offer your employees, including what multiple of their annual salary their family would receive in the unfortunate event of their death.
  • Whether you select a scheme with additional benefits such as bereavement support or probate services.
  • Death in service insurance schemes are typically set up under a trust for tax efficiency. You need to consider whether you would set up your own trust or use a master trust, which is run by your scheme’s insurance provider.

Should I set up a trust for my employees or use a master trust?

Death in service insurance policies are usually set up under a trust so that any pay outs made are not subject to inheritance tax or included in the deceased's estate. A pay out can be made quickly at a time when it is most needed, whereas an estate can take months to settle.

Setting up a business trust

These are commonly known as corporate trusts. The responsibility for organising the trusts and agreeing pay outs fall to senior management or named trustees. The trustees need to:

  • Ensure they have up-to-date employee information and expression of wishes forms.
  • Know the relevant legislation.
  • Know how to deal with a claim, including disputes, should someone pass away.

Businesses may not have the expertise to deal with trust matters or want to deal with the administrative issues of setting up and maintaining a trust, and therefore prefer to set up their death in service scheme using a master trust.

What is a master trust?

  • It is a HMRC registered scheme set up and run by a third party to manage and administer employer life insurance schemes.
  • All trust related governance and decisions are made by the master trust provider.
  • The provider processes and pays out on claims made.
  • The provider deals with any disputes and may refer to the business for information but makes the final decision.

A key difference between a corporate and a master trust is that a corporate trust moves with the company should they change death in service insurance providers, whereas you cannot take a master trust with you. This is something to think about when making the decision on the kind of trust to set up for your business.

Most of the insurance providers on our panel will have master trusts set up that you can use for your death in service insurance scheme. We will make it clear during the quote process which companies have this option available for you. If you choose to use a company that does not have a master trust, it will be your responsibility to register your scheme with HMRC and set up your own business trust before cover can commence.

You can find out more about master trusts and how they work by reading our guide here.

How do I compare death in service insurance?

At Protect My People we help you compare death in service insurance quotes and find cover to help protect your staff.

Getting quotes with us is easy. Tell us about your business and provide us with basic details about your employees and we’ll present you with all the relevant information and prices from our panel of insurance providers.