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Death in Service Insurance
Death in service insurance is similar to life insurance set up by an individual, in that it pays out a lump sum if someone dies, but differs in that the policy is provided by an employer.
The amount paid is usually a multiple of an employee’s base salary and death in service insurance is considered a valuable employee benefit.
- Provides an employee with peace of mind
- Tax-free payment
- Free to choose beneficiaries
- Supplements an individual’s life insurance
The Alan Boswell Group Difference
Alan Boswell Financial Planners are one the UK’s leading, truly independent, financial advisers providing a range of flexible employee benefit solutions for businesses.
We can help with all your employee benefits including: Workplace Pension/Auto-Enrolment Schemes, Group Income Protection Schemes, Death in Service Schemes, Critical Illness Schemes and Flexible Benefits
Death in Service in detail
Death in service may be offered by companies as part of an employee’s benefits package. It is paid out as a tax-free lump sum to the beneficiary of the employee at the time of their death.
An employer would usually require the employee to nominate the beneficiary.
Benefits are normally based on the employee’s earnings and can be tailored to meet the employer’s specific needs and those of their staff.
- Employee benefit Is considered a valuable employee benefit helping with attracting and retaining staff.
- Flexible You choose the level of payment, usually based on a multiple of an employee's salary.
- Choice of beneficiary Your employees can nominate a beneficiary or you can have the payment made to a trust to determine payment.
- Tax-free Policy payments are made tax-free.
It is very important that employees do not consider their death in service policy as a replacement for their own life insurance. Individuals should evaluate what they may need to cover any mortgage payments and standards of living and ensure that they have a top-up insurance policy or their own life insurance policy if they so need.
FAQ's
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Death in service is a benefit which pays out a tax-free lump sum to an individual if they are employed by the company at the time of their death. The pay out is usually based on a multiple of an employee’s salary.
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Assuming claims are straightforward and paperwork is all in place, payments should take no longer than 10-14 days. Most payments are settled within 30 days.
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No. There is no obligation on a company to provide death in service insurance to their employees, but it is worth considering as it is regarded as a valuable employee benefit and can help with recruiting and retaining staff.
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The premium paid by the employer for the death in service policy will depend on how many employees are listed on the policy, the salary they receive, and the multiplier chosen. The premium will be based on the likely payment the insurer would be making.
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Death in service payment is often calculated based on a multiple of the salary the employee is receiving at the time of their death. This is usually between three to five times an employee’s salary. For example, if an employee is receiving a salary of £40,000, and the death in service policy will pay out three times this amount, the beneficiary would receive a payment of £120,000.
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Death in service insurance is a form of life insurance. However, there are some key differences.
Life insurance isn’t provided by your employer, it’s a personal insurance policy that an individual takes out for themselves. Because of this, life insurance gives you more control over how much your beneficiary would receive. Death in service is usually calculated based on a multiplier of your salary, and this multiplier is determined by your employer. With life insurance, you decide how much you want your family to receive.
It is possible to have both life insurance and death in service insurance at the same time which would provide a larger financial cushion for your family.
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The employer will normally require the employee to nominate a beneficiary. The beneficiary is the person that will receive the payment in the event of the employees’ death. Alternatively, the employee can also choose to have the payment made to a trust (normally the company you’re employed by) who will then distribute the payment to dependents and loved ones.
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