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Money Expert > Life Insurance > Death in Service and Life Insurance


DEATH IN SERVICE AND LIFE INSURANCE

Compare life insurance policies with Money Expert

Last updated: 02/02/2023 | Estimated Reading Time: 4 minutes


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Many employers will offer what is known as death in service benefit as part of a
general employment benefit package, paying out if you die while you are working
for the company in question.

However, the nature of death in service cover is such that the payout is often
much smaller than what you’d get from a life insurance policy, and so it is
often worth supplementing it with an independent policy in order to get the
cover you need.

IN THIS GUIDE:

 * What is death in service benefit?
 * How do death in service policies pay out?
 * How much do death in service policies pay out?
 * Is death in service a substitute for life insurance?
 * Death in service and mortgages
 * Should I purchase life insurance as well?


WHAT IS DEATH IN SERVICE BENEFIT?

Employers who offer death in service benefits will pay out a sum in the event on
your death, so long as you are working for the company at the time that you die.

Importantly, your death does not need to occur at work or as the result of any
work-based activity; you simply need to still be on the company’s pay roll when
you pass away.

Sometimes, death in service benefits will be linked to your company pension, and
so you will only receive the associated payout if you are signed up to it.


HOW DO DEATH IN SERVICE POLICIES PAY OUT?

If you pass away and you have active death in service cover, your dependents
will receive a payout in the form of a tax-free lump sum of cash.

Usually, you will nominate a beneficiary who will receive the benefits. It is
important to note here that, sometimes, death in service schemes will payout
into a discretionary trust. This means that the company, rather than you, will
decide to whom the money goes. This shouldn’t be an issue, but you should check
with your company if this is the case if you have particular requirements
regarding who exactly you want to receive a payout in the event of your death.


HOW MUCH DO DEATH IN SERVICE POLICIES PAY OUT?

The payout associated with death in service benefit is generally between two and
four times your annual salary.

So if, at the time of your death, you are earning £50,000 a year from your
company, then your dependents can expect to receive between £100,000 and
£200,000 from the company.

This does vary from employer to employer though so if you know your company
offers a death in service scheme, you should make sure you check with them to
ascertain its exact value.


IS DEATH IN SERVICE A SUBSTITUTE FOR LIFE INSURANCE?

Of course, all situations are different, but the general guideline for life
insurance is to arrange for cover to pay out roughly 10 times your annual
salary. This is to cover the loss of income for your partner and dependants if
you were to die.

Death in service benefits alone may not be sufficient to help your dependants
cope financially in the event of your death.

Again, this will depend on your particular situation, but you might want to
consider supplementing your death in service cover with an independent life
insurance policy in order to make sure your family gets the financial help they
need.

So if you earn £50,000, and your death in service benefit scheme offers a pay
out of three times your annual salary (£150,000), then you could take out a life
insurance policy to the value of £350,000 in order to make up the shortfall.

As you generally don’t have to pay anything to receive death in service
benefits, this still works out much cheaper than just taking out life insurance
on its own with a payout of £500,000.

However, if you change your job, the death in service benefit will stop when you
leave the company. As not all employers provide this benefit, it’s possible that
you could lose this benefit when you change jobs.


DOES YOUR EMPLOYER NOT OFFER DEATH IN SERVICE BENEFITS?

Get a life insurance policy to protect your income instead

Compare quotes


DEATH IN SERVICE AND MORTGAGES

It is important to note that, unlike some forms of life insurance, you can’t
assign death in service benefits to mortgage repayments in the event of your
death. Of course your family could use the cash received towards mortgage
repayments, but you might want to consider purchasing a separate life insurance
policy to take care of your mortgage independently.


SHOULD I PURCHASE LIFE INSURANCE AS WELL?

For the above reasons, opening up a life insurance policy to supplement your
death in service pay-out is often a good idea.

If you wish to do this, you should compare life insurance quotes with Money
Expert to make sure that you’re getting a deal for your extra cover that is
suitable for your circumstances..

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