Death in Service – also known as Group Life Assurance – is a company Death Insurance policy that provides a cash lump sum to your employees’ loved ones should they die whilst in your employment. It is an increasingly popular ‘first step’ on the ladder of employee benefits as it’s among the cheapest insurances to offer.
Although it tends to be the first benefit offered by a company, Death in Service Insurance is not compulsory in the UK.
It’s not something you have to provide, but there are a number of benefits to having a company Death Insurance scheme paid for and administered by the business – and not just for employees. There are benefits for both workers and companies alike.
Meanwhile, the Chartered Institute of Professional Development reveals that 54% of people currently looking for a new job are looking for better pay/benefits, citing this as the main reason for their move.
Employee benefits can help attract and retain employees, improve employee engagement and even reduce absenteeism, especially when the cover comes with employee assistance programs (EAPs).
There are also tax advantages to offering Death in Service cover in the form of corporation tax relief on premiums.
Life Insurance is a popular benefit for workers. However, a recent Drewberry survey found that only around 1 in 3 UK adults had Life Insurance.
Cost is a major barrier to uptake, so having an employer pay for cover could be a major weight off many employees’ shoulders.
Workers with pre-existing medical conditions could also benefit from a company Death in Service policy, as such policies aren’t usually medically underwritten unless you exceed the free cover limit.
Death In Service policies are also written into trust from the outset so should a claim arise the benefit is automatically paid to the employee’s loved ones free from inheritance tax.
The first thing to consider when checking whether your company can take out employee Death Insurance is the number of workers you have – typically, you need at least five workers to be able to put a scheme in place.
Less than 5 employees
If your business is too small for full Death in Service, you may want to consider Relevant Life Insurance as it can be taken out for a single employee.
This offers similar tax benefits to Death in Service Insurance in that the policy is owned and paid for by the business and corporation tax relief is available on premiums.
Employees also need to be eligible as individuals to join the scheme, so you’ll have to check that:
Some employers add additional terms before including employees in policies, such as working for the company for a set period or being above a certain pay grade / status within the company.
You can set up company Death in Service Insurance so that senior staff members get a larger multiple of salary than more junior staff members if you so wish.
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:
Death in Service Insurance for employers is generally considered a business expense, so premiums are typically eligible for corporation tax relief.
It’s also not usually a P11D or a benefit in kind for employees – which means there won’t be any additional income tax your employees will have to pay as a result of being covered.
In most cases, no. When the policy is set up correctly, the benefit is paid into a specially-drafted trust. As a business, you set up this trust before the policy goes live.
The money is then distributed from this trust to the employee’s family. This sidesteps any inheritance tax issues on the payout and means Death in Service doesn’t becomes part of the estate of the deceased employee.
As above, you need to have an appropriate trust arrangement in place alongside your Death in Service Cover to ensure the benefit is paid free from inheritance tax.
There are two ways to do this: You can set up and administer your own trust as a business or you can use an insurer’s existing master trust (where available).
Most insurers already have master trusts in place. These are already set up for you to us, so there’s no need for you to set up a trust of your own.
The administration of the trust, including reporting to HMRC and paying claims, is taken care of by independent scheme trustees.
Master trusts represent a less bespoke option, so it’s recommended you seek the appropriate legal advice before opting for the master trust route to ensure it’s suited to your company.
The main difference between a Death in Service benefit and personal Life Insurance is who pays for it.
With Life Insurance, it’s paid for personally, from your bank account. For Group Life Assurance, the cover is paid for by the company.
You only receive employee Death insurance for as long as you’re working at the company – if you move jobs, your cover lapses. Individual Life Insurance is owned by you personally and remains in place for the full term unless you stop paying the premiums.
Your employer typically decides how much Group Death Insurance you will receive, which is usually a multiple of your salary.
This may not be sufficient to meet your needs, especially if you have a larger mortgage or other commitments you might want to have paid off on your death.
You’re free to choose how much life cover you want on an individual basis, which is why many people choose to ‘top up’ Death in Service Cover with Personal Life Insurance.
Terminal Illness Benefit
A personal policy will payout immediately should you be diagnosed with a terminal illness and be told you have less than 12 months to live. This is not included on the majority of group Death In Service policies.
While the typical level of cover offered is a benefit level of between two and four times the employee’s basic gross salary, this isn’t fixed in stone.
Some insurers offer up as much as 15 times a member’s annual salary. Choosing to offer such a large benefit will of course increase premiums significantly per employee, so it depends on your requirements and what is deemed competitive in your industry.
You can also insure a director remunerated mostly in dividends for a fixed amount as their PAYE salary may be much lower than their actual take home pay.
You may have the option to include company pension contributions in the amount you’re insuring.
You’re also usually able to set different levels of cover depending on workers’ seniority, allowing senior staff to enjoy a higher level of cover than their more junior colleagues.
It is important to highlight that some insurers offer additional benefits with their products, which may not seem obvious when initially looking to invest in a Death in Service benefit.
Most claims are paid within 60 days of being made aware of the death with some providers paying out a lot quicker. The sooner the insurer is made aware the better.
When making a claim they are likely to need to know:
Death in Service Insurance lasts until the pre-defined cease age of the policy. This could either be set to an employee’s state pension age (which will vary depending on the worker) or to an age you specify when you take out the cover.
To comply with pension regulations, which Death in Service Insurance falls under, the maximum cease age for these policies is 75.
The older you set the cease age, the higher your premiums will be.
Death in Service Cover also ceases when an employee is no longer in service with your organisation.
Historically a company pension scheme had a level of Death in Service benefit associated with it however it was often limited to 1 or 2 years worth of income.
More businesses are now choosing to set-up a separate Death in Service policy which is completely independent of the company pension scheme. Many firms offer between 2 and 10 times your gross annual salary as a Life Insurance payout should you die whilst in employment.
Before setting up your own personal cover it is worth checking the amount you would be entitled to from your employer’s scheme.
The free cover limit is the amount of Life Insurance that can be secured on an individual worker before medical underwriting is required.
These limits are typically set high, so for most people being offered two to four times their salary they won’t have to submit any medical details to support their application.
Effectively, this can help get cover for those with pre-existing conditions or other factors that would likely increase Life Insurance premiums as an individual, such as being a smoker, on the same terms as a healthy individual.
Such individuals would likely struggle to get such favourable terms on the personal market, where applications are always underwritten.
For those who exceed the free cover limit, their applications will have to be medically underwritten. However, thanks to high free cover limits for Death in Service Cover, it’s usually only managers and directors with large salaries and therefore large benefits who need to be concerned with this.
AIG took over Ellipse — which was a relatively new provider, founded in 2009 — in December 2018. This married Ellipse’s bespoke insurance services in the group sphere with the backing of international insurance giant AIG.
AIG’s Death In Service benefits include an online nomination of beneficiary form and online medical underwriting, which can help speed up the application process.
Aviva can trace its roots back to 1696, but the company as it is known today was formed via the 2000 merger of Norwich Union ad CGU PLC.
Aviva’s Group Life cover allows employees who are part of the scheme to add a spouse / partner to the policy. The employee assistance program on offer includes discounted gym memberships and access to a 24-hour stress counselling helpline.
Canada Life is a Canadian company offering life, health and disability insurances for both groups and individuals.
With Canada Life, employees’ families are provided access to bereavement and probate helplines after the death of their loved one.
Legal & General was founded in 1836 and is one of the oldest and most recognisable insurance brands in the UK. With Legal & General workers get access to a substantial employee assistance program that includes telephone counselling; cognitive behavioural therapy (CBT); telephone-based bereavement counselling; a legal information service; and medical information.
MetLife is the trading name of New York-based business The Metropolitan Life Insurance Company. It’s among the largest providers of insurance, annuities and employee benefits programs worldwide.
MetLife’s group life cover comes with a free bereavement and probate support for employees and their families, making up to six face-to-face bereavement counselling sessions available.
The Unum Group was formed in 1999 through the merger of Unum Corporation and The Provident Companies. Today, the company operates through three distinct business arms: Unum US, Colonial Life and it’s UK branch, Unum UK.
Unum offers a multiple of between 1x and 12x salary with one of the highest free cover limits on the market.
We are here to ensure you and your employees don’t miss out on financial security because appropriate insurances were not put in place. If you are looking for a Death in Service Insurance Quote we can compare pricing from all the leading UK insurers.
Our experts can help provide you with all the necessary information for you to make an informed decision. It will all be compiled into a free report laying out the most competitive options for your business.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
If you would like some help reviewing your existing Death in Service or are setting up a new scheme please don’t hesitate to get in touch.
Pop us a call on 02074425880 or email us at email@example.com.
Director at Drewberry
Josh was brilliant, very quick process, simple, regular updates and reliable. Would highly recommend.