Death in service cover

Death in service cover pays out a lump sum if you die while employed by your company. Learn about how death in service benefit can help your family and find out how it differs from life insurance.

Death in service cover pays out a lump sum if you die while employed by your company. Learn about how death in service benefit can help your family and find out how it differs from life insurance.

Faith Archer
Insurance expert
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Last Updated 12 JANUARY 2022

What is death in service insurance?

Death in service insurance is a type of cover that may be offered as a benefit by the company you work for. It pays out a tax-free lump sum if you’re on the payroll when you die.

Unlike life insurance, death in service cover ends if you leave the company. So if you lose your job or move employers, you’ll no longer be protected.

How does death in service benefit work?

Companies aren’t legally required to offer death in service cover, but many include it in their benefits packages.

There’s no annual or monthly premium to pay and your death doesn’t have to be work-related. In most cases, if your company offers death in service benefit, you just need to be on the payroll to be covered.

The pay-out your beneficiaries get depends on the type of death in service package you have – in most cases, it’s based on the amount you earn. For example, if you earn £40,000 a year before taxes and your death in service benefit is five times your salary, the lump sum pay-out on your death should be £200,000.

Who receives the death in service pay-out?

The money from death in service benefit is intended for your family, dependants or another person you choose (these are called beneficiaries). In most cases, though, it will go into a discretionary trust first.

A discretionary trust prevents the pay-out from being liable for inheritance tax. This means that rather than directly receiving the money, your beneficiaries will be paid the death in service benefit from the trust.

In these cases, it’s vital to fill in any ‘expression of wish’ or ‘nomination of benefit’ paperwork, saying who you’d like the money to go to. Although the trustees (usually the company you work for) still have the final say, your wishes should be taken into account.

How long does death in service benefit take to pay out?

The time it takes for your beneficiaries to receive the money depends on your employer and the process they have in place. If the benefit is paid into a trust and they have your nomination of benefit form on file, it should be fairly straightforward. If all the paperwork is complete, it can take between two weeks and 30 days for your beneficiaries to receive the pay-out.

What is the average pay-out for death in service?

That depends. The amount paid out if you die while employed depends entirely on the terms and conditions set out by your employer. Usually, the pay-out tots up to be around three to five times your annual salary.

If your employer offers a flexible benefits package, you may be able to increase the death in service pay-out by taking a  salary cut. Or you could reduce or even ditch other benefits to get a higher death in service payment.

What should I consider with this type of insurance?

Unlike life insurance, you won’t usually have to pay a premium for your death in service benefit – it will come as part of your benefits package. But there's a few things to think about:

  • Your pay-out is normally worked out as a multiple of your salary – so be sure the lump sum is enough to cover your family’s outgoings in the future.
  • You may not know who’ll get the lump sum if you die, as it may fall under a discretionary trust.
  • You can’t usually earmark the pay-out to cover mortgage payments.
  • Since death in service is a benefit, the full details will vary depending on your employer.

What’s the difference between death in service and life insurance?

While both types of cover can offer valuable financial support for the people you love, there are notable differences:

  • With death in service cover, your employer decides the pay-out amount – with life insurance, you get to choose how much you want your beneficiaries to receive.
  • You have more control over a life insurance policy – for example, you could write it in trust and choose your own trustees and beneficiaries, or you could take out a policy that pays off your mortgage. With death in service, your employer is the trustee and they have the final say.
  • Death in service cover ends if you leave the company – life insurance will cover you for the length of the policy, wherever you choose to work.
  • Death in service only covers you, not your spouse or partner – with life insurance, you can choose to take out single cover for each of you, or a joint policy together.
  • With life insurance you can choose the type and length of cover you want – for example, whole of life cover that guarantees a pay-out when you die, whenever that is, or decreasing term life insurance that reduces in line with your mortgage.
  • Unlike life insurance, you don’t need to go through underwriting to get death in service benefit – underwriting means the insurance provider decides whether to offer you a policy or not based on questions about your health and lifestyle.

Top tips to do right now

Death in service is a valuable perk should the worst happen, and even better, you don’t have to pay a penny.

To make the most of death in service cover:

  • Check if your employer offers it. Most do. If in doubt, ask HR.
  • Fill in any paperwork about who you’d like to get the money if you die. Don’t let it slip off your to-do list.
  • Work out how much the pay-out would be if you died. It’s normally a multiple of your annual salary.
  • Calculate how much your family or other dependants would need if you were no longer around – to clear the mortgage, pay household bills, cover childcare costs and even uni expenses. Will your death-in-service benefit touch the sides or do you need more life cover?
  • Think about how long you intend staying in your current job, especially if you might become self-employed or stop working, for example to bring up children. Any death in service cover only lasts while you stay with your company – although a new employer may offer new cover.
  • Get a quote for any extra life insurance you might need. Remember, the younger and healthier you are when starting life cover, the cheaper it will be. If you wait until you’re older, you risk paying higher prices, especially if you suffer from health conditions before signing up. Learn more about pre-existing medical conditions and how they could potentially affect life insurance.

It may be that a combination of life insurance and death in service is the best way of securing your family’s financial future.

Frequently asked questions

Will death in service benefit cover my mortgage?

You can’t directly request that the death in service benefit is used to pay off your mortgage. It will be up to your beneficiaries to decide what to do with the money once they receive it.

If you want to make sure that your mortgage payments are covered if you die, you might consider taking out a mortgage life insurance policy. This will provide a lump sum for your family to pay off the mortgage.

How do I find out if I have death in service cover?

Check if your company offers death in service cover, as not all do. In some cases, death in service will be linked to the company pension scheme, so if you’re not signed up to that then you won’t be covered. Give your company’s HR department a shout. They’ll be able to explain what benefit packages are available and what you’re eligible for.

Do I need both death in service and life insurance?

While death in service could be a valuable perk, the pay-out might not necessarily be enough to support your family should they need it. And even if you have no intention of leaving your job, there’s no guarantee you’ll stay there until you retire.

Life insurance could offer the extra financial support your family may need. If you have death in service benefit, it could also bring down the cost of a life insurance policy, as you’ll need less cover.

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