Death in service vs Life insurance - what’s the difference?

Work perks are pretty cool right? That free private medical insurance, those employer pension contributions and discounted gym membership, certainly make working for a company that bit better! But did you know that one of the most common employee benefits is actually death in service cover? Okay, the name’s a bit morbid, but actually this company perk is definitely worth knowing about.

In this guide we explain how death in service works and how it compares to normal life insurance.

• What is death in service benefit? 
• Who gets the death in service payment?
• How do I know if I have death in service?
• What is the difference between death in service and life insurance?

What is death in service benefit? 

Death in service cover pays out a tax-free lump sum of money if you die while working for a company. It’s a type of insurance policy that your employer usually buys for you, so they foot the bill! Now it’s worth saying, you don’t have to die while physically in the workplace to receive a payout from this policy, you simply need to be on the payroll.

The amount that’s paid out if you die is usually set by your employer as a multiple of your annual salary, usually between two and four times, but it can vary employer to employer. So if you earn £30,000 a year and pass away while still employed, your death in service cover should pay out between £60,000 and £120,000. 

Who gets the death in service payment?

It’s easy to assume that any payout would pass to your loved ones should the worst happen and you pass away. And while this is possible, it’s not always guaranteed with death in service cover. That’s because death in service insurance is often set up in a discretionary trust -  complicated name, but basically it’s a way to control where an insurance payout goes. The trustees, usually your employer, will have the final say on where insurance money goes. 

But don’t worry too much, because although your employer will make that final decision, you should also be able to nominate a beneficiary - the person who you’d like to receive the payout. It’s worth speaking with your company, usually the HR team, to understand how your death in service cover works and who your named beneficiary is. 

How do I know if I have death in service?

It’s not a legal requirement for businesses to offer death in service cover, so not all employers do. It’s definitely worth checking what cover you have by speaking with your HR team. Make sure you check how much cover you have (what multiple of salary) and where a payout would go. It’s also worth knowing that even if your employer offers a death in service benefit, it may be the case that not all employees have access to it. For example, some companies require you to be enrolled in the workplace pension scheme to qualify for death in service - another thing worth checking with your employer.

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

You may be thinking: ‘Do I need life insurance if I have death in service?’ The surprising answer is that you probably do. Here’s why:

If you have death in service cover, the amount paid out if you pass away will be a multiple of salary - set by your employer. This amount may not accurately reflect how much your loved ones would actually need if you passed away, so they could be left with a financial gap if you were no longer around.

Buying a personal protection policy gives you far more control to choose exactly the type of insurance you need, whether that’s life insurance, critical illness insurance or income protection insurance, and the amount of cover you’d like given your debts, savings and longer term financial goals. 

You can of course buy a personal life insurance policy alongside your death in service cover to plug any financial gaps. Our team of expert protection advisers will be happy to help! Give us a ring on 0800 316 7253 and we can talk you through your options and help you find the best life insurance policy.

Because death in service cover is a company benefit, it’s only with you while you work at that company. If you leave the workforce or move jobs, you will most likely lose that insurance protection. 

Personal insurance policies allow you to choose how long you’re covered for, providing peace of mind and certainty that you and your loved ones will be financially protected as long as you need to be. 

As we mentioned above, another slight downside of death in service cover is that you may not have full control over who a payout goes to. The opposite is true for personal life insurance - you can decide exactly who you’d like to receive your life insurance payout.