Death In Service Insurance

How Does Death in Service Insurance Work?

• Death in Service Cover pays out a lump sum benefit of a multiple of an employee’s salary should they pass away during employment at the organisation.
• The payout is completely tax-free for the employee’s family thanks to the fact that typically the policy will automatically be written into trust from the outset.
• This trust is owned and controlled by the company, as is the policy, and the company also pays for it.
• However, the payout belongs to the employee’s family and is paid to them via a trust in the event of the death of the employee.
• As well as choosing the benefit – either a multiple of salary or on a flat rate basis – the employer gets to choose how long the benefit will be payable for.
• You may choose to opt to create tiers of death in service cover depending on the seniority of your workforce. Some businesses choose to offer senior staff a higher multiple of salary than more junior members, for example.

Setting Up Death in Service Insurance

To set up Death in Service benefit, you’ll need to collect detailed information from each employee and present these to every single insurer you compare the UK’s best Death in Service quotes. To get a fair premium representative of the whole market, we recommend you visit at least three employee benefits providers.

Get your HR team to collect:

• Employees’ salaries and the level of cover – we need this to work out how much you want to insure each individual for and therefore price the policy accordingly.
• Your industry and occupation – there are some occupations (e.g. manual work, working at heights or underwater) that are riskier than others, such as desk-based clerical jobs.
• Employees’ ages – older employees are more likely to claim on the policy.
• Age at which you want the cover to finish – the older this is set at, the more expensive premiums will be.
• The size of the group – although there are more lives to insure the bigger the group, insurers often offer a discount for larger group sizes.
• Where employees are usually based for work.
• If employees are actively at work currently – those off on long-term sickness at the policy’s inception are unlikely to be covered.

When you set up a Death in Service policy, you’ll need to collect all this information and send it across to every insurer in the marketplace if you want to get the best premiums.

Alternatively, you can just send this data to Drewberry once. We have relationships with all the leading insurers and have created smooth processes to go to the market on your behalf to obtain the best quotes for you before presenting these all in an easily-digestible report. This is entirely free and part of the service, so give us a call today on 01273646484.

Nadeem Farid
Employee Benefits Consultant at Drewberry

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How Much Does Death in Service Insurance Cost?

The cost of Death in Service Cover, like any group insurance scheme, will depend largely on the demographics of your workers.

Although there’s usually no need for medical underwriting, cost will still depend on the age of the workforce, for example. An older workforce will typically increase premiums due to increased risk. Other major factors that will determine the cost of Group Life Cover include:

• Employees’ salaries – given that the benefit is based on a multiple of salary. If you have many high-earning employees, you’ll likely face a higher Death in Service premium
• Your industry – certain industries require employees to take on risker roles (e.g. manual work, working at heights or underwater) than would be undertaken by the typical desk worker, so premiums will be higher in such industries
• Number of workers – while you might think that it would cost more to insure a larger group of people, in fact certain cases insurers will offer a premium discount for groups above a certain size.

Given that the price of Death in Service Insurance is based so heavily on the makeup of your workforce, it’s essential we collect the relevant information before we start.

While clients are sometimes rightly concerned about handing over confidential employee data, we can’t do our job to secure you the best premiums without it. We treat your data with the utmost respect and fully comply with the Data Protection Act, so you’ll never find it’s been leaked to third parties.

Matteo Mockler
Health & Wellbeing Expert at Drewberry

How is Death in Service Insurance Taxed?

Life Insurance for employees is paid for by the company and the premiums are generally an allowable business expense for corporation tax purposes. It’s also not a P11D or a Benefit in Kind for employees – which means there won’t be any additional income tax you’ll have to pay as a result of being covered by your employer.

This is compared to an individual policy, where you pay for premiums out of income on which you’ve already had tax and National Insurance deducted. Plus, you’re paying for cover out of your own pocket rather than having the company cover the costs.

Group Life Insurance Trusts

The way Death in Service Cover is set up typically includes a trust from the outset. This trust is owned by the company and the Life Insurance is written into that trust.

As a result, in the event of a claim, the money is paid first into the trust before being distributed to beneficiaries. This intermediary step between the death of the employee and their loved ones receiving the benefit allows the bereaved family to sidestep any inheritance tax issues on the payment.

Given that Death in Service policies usually come with corporation tax relief on premiums and the payout, thanks to the trust, isn’t taxable either, Group Life Insurance is one of the most tax-efficient options for life cover on the market today.

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