Death-in-service cover

How death in service differs from life insurance

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Many businesses offer a death-in-service benefit, which will pay your dependents a lump sum if you die while you’re employed

What is death in service cover?

Death in service cover is a benefit offered by some employers which will pay out a lump sum to a person of your choosing if you’re working for the company at the time of your death. The money from death in service is tax-free, and it’s usually a multiple of your yearly salary.

Death in service cover doesn’t require you to die while at work or in a work-related accident – you just need to be on the payroll.

How does death in service work?

Death in service cover is paid out by your employer if you pass away while you’re still an employee. How much money your dependents get from death in service cover depends on the package, but in most cases, it’s worked out based on the amount you earn.

For instance, you might have a death in service benefit of four times your average salary. If you make £30,000 a year before taxes, your survivors will receive a lump sum of £120,000.

This money can be paid out directly to your survivors, or – more likely – into a discretionary trust.

Who gets the money from death in service cover?

Most of the time, the money paid out by death in service cover isn’t received directly by your loved ones. Instead, it gets put into a discretionary trust, and your survivors will then get the death in service benefit from the trust.

This means that the trustees – usually your employer – will have the final say on where the lump sum goes, but your wishes will be taken into account. It’s a good idea to write an expression of wishes or a nomination of benefits letter letting them know who you’d like to receive the money if you pass away.

Unlike with life insurance, you can’t nominate a death in service benefit to pay out directly to your mortgage. Your survivors might use the money to pay off your outstanding debts, but it’s a good idea to have separate life insurance, just in case.

How long does it take to pay out death in service cover?

The length of time it takes for a death in service payment to reach your loved ones will depend on your employer and your own situation. However, the process is usually complete within 30 days – and can take less than two weeks.

One major factor that can slow down a death in service payout is missing paperwork. If your benefit is paid into a trust, they should have a document – such as an expression of wishes or a nomination of benefits letter – telling them who you want to receive the money. This will help ensure that your loved ones will receive some assistance as soon as possible after you pass away.

Do I have death in service cover?

Companies aren’t legally required to offer death in service benefit, so not all employers will give you cover. Sometimes death in service is linked to the company pension, which means you can be an employee without receiving death in service cover if you’re not signed on to the scheme. It’s a good idea to contact your human resources department for more information – they’ll be able to tell you what’s on offer and whether you’re eligible.

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

Even if you already have death in service benefit, it’s a good idea to have a life insurance policy at the same time. Death in service cover usually ends up paying out to your loved ones – but there’s always a chance that something could go wrong. Life insurance can give you the certainty that your survivors won’t be saddled with money problems if you pass away.

Most insurance advisers also recommend that life insurance policies pay out ten times your annual income – that’s a lot more than even the most generous death in service benefits.

The money paid out by death in service cover might seem like a lot, but it can be eaten up fast if your loved ones have to pay off your mortgage, and the cost of a funeral can run to thousands of pounds. Life insurance can make sure your dependents don’t have to face extra costs and stress during an already stressful time.

You can use life insurance to top up your death in service benefit – for instance, if you earn £30,000 and you have a death in service benefit worth four times your salary – or £120,000 – you could take out a life insurance policy worth £180,000 to give a total pay-out of £300,000, or ten times your income.

It’s also worth remembering that death in service benefit only pays out if you’re still employed by the company when you pass away. If you change jobs, take a break from work, or go into self-employment, you’ll lose your death in service cover.

If you’re looking for a good deal on life insurance, the best way to find a policy that meets all your needs is to use a price comparison site like MoneySuperMarket. Our price comparison engine searches through dozens of leading insurance providers so you have all the best deals available at your fingertips.

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