Life Assurance - Death in Service
What are death-in-service benefits?
A death-in-service benefit provides a payout to any employees who die during their employment with you. This comes from a life insurance policy your company pays for on your employees' behalf.
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Many companies offer a death-in-service benefit as part of a broader employee benefits package.
Why it's a good idea to offer death in service as part of your benefits package
When employers provide death-in-service benefits, employees know that the payout their loved ones will receive can support their family financially when they're no longer around. It could cover mortgage payments, outstanding debts or day-to-day living costs.
Offering a death-in-service benefit can also enhance your reputation and make you an employer of choice. It demonstrates a willingness to look after employee welfare, which can improve staff retention
How do death-in-service benefits work?
You can offer death-in-service cover by choosing a policy with terms and conditions that suit your needs, then pay a premium to cover each employee. If an employee dies whilst employed with you, the policy will pay out a tax-free lump sum to their beneficiaries.
The death doesn't need to be work-related for the death-in-service benefit to pay out, but it will only pay out if the person covered is still an employee.
The death-in-service benefit pays a lump sum to a chosen beneficiary
A death-in-service payout will go to your employee's chosen beneficiary, typically their spouse, partner or another dependent. You can ask a new employee to complete a beneficiary nomination form as part of their onboarding process, so all the paperwork is in order.
The death-in-service benefit amount
The amount that a death-in-service benefit pays depends on the policy you choose. The money paid is usually a multiple of an employee's annual salary, typically between 2-4 times.
How much does a death-in-service policy cost?
The cost of your death-in-service premiums depends on various factors relating to the risk that a claim will be made against the policy. Some relate to your business and chosen policy, while others vary between employees.
• Size of business
• Type of business
• Level of coverage
• Free cover limit
• Additional coverage
• The insurance term
• Increasing or level cover
• Reviewable or guaranteed premiums
What types of death-in-service benefits are there?
Death in-service cover can be provided by two types of life insurance policies, which your company can offer together or separately.
Group life insurance policy
A group life insurance policy offers your employees a death-in-service benefit without needing to pay for separate life insurance. They can still take out individual life insurance to provide their loved ones with additional financial protection and pay the annual or monthly premium themselves.
What does group life insurance cover?
A death-in-service benefit pays a lump sum equivalent to a multiple of your employee's annual salary. Some policies will also allow you to claim all or part of the death-in-service payout if an employee becomes terminally ill and has a life expectancy of fewer than 12 months.
You can also add other services, such as well-being support, rewards and discounts and bereavement counselling.
Relevant life insurance policy
You can opt to deliver your death in service benefit by choosing a relevant life insurance policy that can offer high-earners tax benefits.
What does a relevant life insurance policy cover?
Relevant life cover provides a death in service payment equivalent to a multiple of an employee's annual salary. It can pay out up to fifteen times your yearly total remuneration. This isn't limited to your annual salary, so it can be more suitable for company directors who may receive dividends and a bonus.
What are the tax implications?
Depending on the policy type, there are various tax implications which can be of benefit including reduce tax payments. Holcombe Financial Services can advise and help you make an informed decision.
