Death in service

What is death-in-service benefit?

Death-in-service benefit is a type of group life insurance provided by your employer.

It pays out a lump sum to your chosen beneficiaries if you die while employed by the company. It’s worth knowing that the death doesn’t need to happen at work – the cover applies as long as you’re on the payroll.

It’s a perk which is often included as part of an employee benefits package, alongside pensions, health cover and so on.

How is the death-in-service payment calculated?

The payout is usually based on a multiple of your annual salary.

Many schemes offer between:

• 2x to 4x your salary
• Sometimes more, depending on the employer

For example, if you earn £40,000 and your scheme offers 3x salary, your beneficiaries could receive £120,000.

The exact amount depends on your employer’s specific policy.

What is the key difference between death in service and personal life insurance?

Although both provide financial protection, death in service and life insurance work in different ways.

• Death in service is tied to your job and provided by your employer
• Life insurance is a personal policy you take out yourself

The main differences are as follows:

• Death-in-service cover usually ends if you leave your job
• Life insurance stays in place regardless of employment, as long as you keep paying your premiums
• Life insurance can be tailored to specific needs, such as covering your mortgage

In short, death in service is a valuable workplace benefit, although it’s not necessarily a replacement for personal cover.

How is the death-in-service benefit taxed?

In many cases, death in service payouts are tax-free.

That’s because the policy is typically written into a trust, meaning the money:

• Doesn’t form part of your estate
• Isn’t usually subject to inheritance tax

This also helps speed up the payout process, as it doesn’t need to go through probate. This means your dependants or loved ones can receive a payout when it’s really needed and not have to wait for what can be a drawn-out process.

Who receives the death-in-service benefit payment?

The payout is handled by trustees of the scheme, who decide who should receive the money.

You’ll usually be asked to complete an ‘expression of wish’ form, where you nominate your preferred beneficiaries.

While trustees will take your wishes into account, they’re not legally bound by them. Their role is to ensure the money goes to the most appropriate recipients.

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

This depends on your circumstances.

You might consider additional life insurance if, for example:

• Your death-in-service payout wouldn’t cover your mortgage
• You have dependants who rely on your income
• You want longer-term financial protection

For example, a payout of, say, four times your salary might not be enough to cover a large mortgage plus other future living costs.

Find out more about how much life insurance you might need.

How do I make a claim on a death-in-service policy?

The claims process is usually handled by your employer or the scheme trustees.

Your beneficiaries will typically need to provide:

• A death certificate
• Proof of identity
• Any other required documentation

Because the policy is managed through a trust, the process is often more straightforward than other types of insurance.

How long will it take to pay out on a claim?

Payouts are generally made relatively quickly, often within around 30 days once all paperwork is complete.

This is because the funds don’t need to go through probate, which can otherwise delay payments.

What happens if I leave my job?

Death in service cover is not portable.

If you leave your employer:

• Your cover usually ends immediately
• You won’t be protected unless you arrange alternative cover

This is why many people choose to take out personal life insurance alongside workplace benefits. As long as you continue to pay your premiums, your life insurance won’t be affected if – for instance – you’re made redundant or get another job elsewhere.