Death In Service Insurance

A Death In Service benefit is a very simple Life Insurance policy paying out if the worker passes away whilst in employment with your organisation.

The policy would pay out irrespective of whether death occurs at work or not. For example, it could be as a result of an accident whilst on holiday or as a result of a long-term serious illness.

Each employee is covered for a multiple of their gross earnings which is determined by the business upon setting up the policy.

It is also commonly known as Group Life Assurance and is an increasingly popular ‘first step’ on the ladder of employee benefits as it’s among the cheapest benefits to offer while still providing valuable peace of mind for your workers and their loved ones.

• A Death in Service policy is paid for and administered by the company.
• The business chooses a level of Life Insurance to provide to their staff which is often between 2 and 4 times their gross annual salary.
• You can opt to create ‘tiers’ of 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.
• Should a claim arise the chosen multiple of salary will be paid out as a lump sum benefit and paid to the loved ones of the deceased.
• Any payout is completely tax-free for the employee’s family so long as the policy has been written into trust correctly.

Although employee life insurance tends to be the first benefit offered by a company it is not compulsory in the UK. To set up a group policy you will generally need at least 5 employees.

If your business is too small for a full Death in Service benefit, you may want to consider a product called Relevant Life Insurance as it can be taken out for a single employee. There are similar tax benefits to a Death in Service scheme in that the policy is owned and paid for by the business and there is corporation tax relief available on premiums.

Although it’s employees who get covered with Death in Service Insurance, there are benefits for both workers and employers alike.

Benefits for Employers

According to Investors in People…

• Almost 1 in 5 UK employees are unhappy in their job due to a lack of benefits.
• 44% of UK employees considered company benefits to be one of the most important qualities that attract them to a new company.

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.

Benefits for Employees

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 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 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 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.