What is death in service insurance?

What is death in service insurance?

Looking after their staff is a responsibility most employers take seriously. But sometimes life can take an unexpected turn, and a tragedy such as an employee passing away can leave their family and loved ones in both emotional and financial turmoil.

Death in service insurance is a life insurance policy an employer takes out on behalf of their employees and is designed to pay out a lump sum to their loved ones in the unfortunate event of their passing.

As the employer, you take out the insurance and offer it to your employees as part of their benefits package. The insurance usually covers someone during the time they are employed by your company, with the cover ending for that employee when they leave, retire or reach the policy specified age as chosen by you.

What are the benefits of death in service insurance?

As an employer, you already know how difficult it can be to attract and retain good employees.

Death in service insurance is a low-cost way of providing a highly valued employee benefit that could help you to stand out from your competitors during the recruitment process.

Not only that, your employees can benefit from the peace of mind that comes with knowing their loved ones may be looked after financially should the worst happen to them.

After all, the most important thing to your employees is their loved ones and family. So, knowing that their family home may be maintained, or their lifestyle protected in the event of their death, is no doubt reassuring to your staff.

Providing an employee benefit that really matters such as death in service insurance shows employees you care about them and their families, having a potentially positive impact on staff morale and loyalty to your company.

Click here to read more about the benefits of death in service for both employers and staff.

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How does death in service insurance work?

Death in service insurance works in the same way as an individual life policy in that if the insured person dies it pays out a pre-determined lump sum.

With a death in service insurance policy, the pre-determined lump sum is then paid to a trust. The trustees will then administer and make payments to, the beneficiary (normally a spouse, partner or family member). This will take into account the deceased’s wishes previously expressed via their nomination form.

For more information on trusts, see our ‘What is a master trust?’ guide.

How much cover will my employees have?

The level of cover is usually based on a multiple of your employee's salary, for example two or four times their annual salary or a fixed amount.

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Do I need to review my death in service scheme?

When you take out death in service insurance, the policy comes with a “rate guarantee” which is normally valid for two years. So, you may wish to review it every two years to make sure you get the best possible deal for your business.

You should compare your current policy against others in the market in the same way you would your car or home insurance. Failing to consider alternative options can mean some employers miss opportunities to reduce the costs of their scheme or find a policy with enhanced benefits for their staff.

Key points:

  • The employee must be employed by your company at the time of their death for a pay out to be made.
  • The death does not need to happen while they are at work or in the workplace.
  • An individual’s insurance cover stops once your employee reaches the pre-selected age on the policy chosen by you at outset.
  • The sum paid out is normally based on a multiple of your employee's salary (e.g. 3 or 4 x their annual salary) or a fixed amount.
  • The lump sum paid out is usually tax-free (as long as the pay out together with the total value of the employee’s workplace pension fund/s is less than the employee's lifetime allowance).
  • Cover may include bereavement support and counselling, and probate services although this varies by provider.

How do I compare policies?

We've made the process as easy as possible, so you can get quotes from leading death in service insurance providers quickly and efficiently. All you need to do is work through a few simple steps on our online service and you can start to compare policies:

1. Tell us some details about your company

2. Let us know what type of cover you want for your employees

3. Give us some details about your employees

We'll then pass the information on to the insurance providers who will come back with quotes, usually within two working days. Some providers may not be able to return them this quickly. In these cases, we will send them to you as soon as we receive them, and within 10 working days.

Click here to start the quote process now, or if you'd like more detailed information about how the process works, visit our guide on how to buy death in service.

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*Tax rules and legislation can change, and the value of tax benefits depends on your individual circumstances. This information is based on our understanding in March 2020.