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What Is Death In Service Insurance? How Much Does It Cost?
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19-10-2020
Death in Service Insurance is a cost effective company-paid life insurance policy. It provides an employee’s family or nominated beneficiary with a tax-free cash lump sum should they die while working for your business. The payout is typically between 2 and 4 times an employee’s annual salary.
In brief, the benefit:
- Provides a multiple of salary / earnings as a death benefit (usually between 2 and 4 times annual salary, although up to 15 times is possible).
- Is paid tax-free to an employee’s loved ones thanks to the trust set up with the policy.
- Pays out no matter where the death occurs, whether this is on the job, at home or even overseas.
- Helps a worker’s family cope financially if a staff member dies.
- Is one of the cheapest group insurance policies to implement.
Is Death in Service Compulsory?
Although it’s usually the first benefit companies offer, it is not mandatory in the UK.
However, while it’s not something you must provide, offering it has plenty of benefits.
Benefits For Employers
The Chartered Institute of Professional Development (CIPD) reveals that
54% of people seeking a new job want better pay / benefits, saying this was the main reason for deciding to move.
Employee benefits are important to workers and can help:
- Attract and retain staff
- Improve employee engagement
- Reduce absenteeism, especially when coupled with an employee assistance program (EAP).
Benefits For Employees
Death in service provides financial security and peace of mind for your family in the event of your death. However, a recent Drewberry survey found that only around 1 in 3 UK adults actually had it.
Many without Life Insurance say cost is a barrier to uptake. Having an employer pay could therefore be a big weight off of employees’ minds.
As well as paying out if an employee dies, there are a number of everyday benefits for employees that insurers often provide free alongside a policy:
- An employee assistance program (EAP)
- Digital GP service (check out our director’s experience using it)
- Physiotherapy
- Counselling helpline
- Nutrition and fitness programs.
How Much Does Death In Service Insurance Cost?
The cost of Death in Service Cover depends largely on the profile of your employees. Major factors that determine premiums include:
- Workers’ ages
- Staff salaries
- Your industry
- Number of workers.
While premiums can vary considerably depending on your company and workforce, we’ve laid out example premiums based on two recent clients in the table below.
Software Company | Health Services Company | |
|---|---|---|
Location | London | Barnsley |
Employees | 10 | 200 |
Cease Age | State Retirement Age | State Retirement Age |
Level of Cover | 4x Annual Salary | 1 x Annual Salary | Cost per Employee | £29.35 per month | £2.52 per month |
Although the above figures provide a rough idea of the cost of a death in service benefit for your employees, to compare quotes from all the leading insurers call us on 02074425880 or email help@drewberry.co.uk.
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How Is It Taxed By HRMC?
HMRC generally considers death in service a business expense for employers. This means premiums are typically eligible for corporation tax relief.
Meanwhile, for employees, it’s not usually a P11D or a benefit in kind. There won’t therefore be any additional income tax for staff to pay on the benefit they receive.
What About Inheritance Tax on the Benefit?
You don’t typically pay inheritance tax on death in service cover. This is because a trust must be in place before the policy goes live.
In the event of a claim, the trust distributes the payout, usually to the employee’s next of kin (although it could be to any individual or UK charity the employee nominates).
This avoids inheritance tax on the claim by ensuring it never becomes part of the deceased worker’s estate.
Which Type of Trust Should I Use?
In most cases you’ll need a discretionary trust. However, there are two main options:
- An employer-established trust
- The insurer’s master trust.
An employer-established trust is the more bespoke approach. It gives you as the business the most control. However, you’ll also be responsible for all the administration and staying on top of any changes to trust law.
The insurer’s master trust is less bespoke. This said, it needs much less admin as the insurer takes care of everything. For this reason, many of our clients do use the insurer’s master trust.
For more on the difference between these two types of trust and which might be right for you, click here.
Is It Linked To A Pension Scheme?
Historically, a company pension scheme may have included a level of Death in Service benefit. However, this was often limited to 1 or 2 years of pension income.
Today, most businesses now choose a separate Death in Service policy that’s completely independent of the company pension scheme.
Beware the Pension Lifetime Allowance
It’s worth considering that a payout could form part of workers’ pension lifetime allowance. While this isn’t an issue for most people, it might be for high earners with large pension pots.
If an employee exceeds the pension lifetime allowance (currently set at £1,073,100), they’ll need to pay additional tax at 55% on pension income and the death in service benefit.
Who Are The Best UK Death In Service Insurance Providers?
As an independent employee benefits adviser, we work with all the top UK insurers. We’re here to do all the heavy lifting, comparing quotes from insurers including:
- AIG
- Aviva
- Canada Life
- Legal & General
- MetLife
- Unum.
Every insurer is different which makes it important to do thorough market research to find the one that best meets the needs of your business.
How Does It Fit With Other Employee Benefits?
Given its position as a cheap yet highly-valued employee benefit, death in service is often one of the first benefits a company introduces.
As a cornerstone of any employee benefits package, it can offer a solid foundation to introduce other insurances, such as:
- Business Health Insurance
Pays for healthcare in private hospitals, providing your staff with the best care exactly when they need it. - Group Critical Illness Cover
Pays out a tax-free lump sum if a worker is diagnosed with a critical illness such as cancer, heart attack or stroke. - Group Income Protection Insurance
Works with your company’s sick pay policy to offer staff a monthly income if they’re medically unable to work.
Relevant Life Insurance For Micro Businesses
You’ll need at least three employees for a death in service benefit. If you don’t meet this criteria but you still want company Life Insurance, Relevant Life Cover could be your best option.
What is Relevant Life Insurance?
- A tax-efficient way to protect the lives of individuals within a business.
- The business owns and pays for the policy.
- The family receives a payout should the worker die during the policy term.
However, a key difference from Death in Service is that insurers underwrite Relevant Life Cover individually, meaning they’ll require medical information.
Profile Pensions’ Death in Service Story
Here’s why Profile Pensions chose Drewberry to help with their scheme:
“Getting death in service was a no-brainer. Our employees get comfort from knowing it’s there and we’re proud to provide that. We work hard to provide good benefits to our staff and show a commitment to our employees, so introducing an employee benefit was really a logical step.”
Michelle Donlin
HR and Office Manager at Profile Pensions
Compare Death in Service Quotes & Get Expert Advice
Setting up and maintaining a competitive Employee Benefits scheme can be a bit of a headache, but Drewberry takes all the heavy lifting off your desk. We do this for businesses of all sizes across the UK so you can focus on what you’re best at: delivering your own proposition.
Why Speak to Us?
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to things as important as employee benefits. Below are just a few reasons why it makes sense to talk to us.
- There is no fee for our service.
- We are independent and work with all the leading UK insurers.
- You’ll speak to a dedicated expert from start to finish.
- We are very proud of the 2872 and growing independent client reviews rating us at 4.92 / 5.
- Benefit from the protection of regulated advice.
- Support with a claim when you need it most.
- A personalised benefits page for your business 👌
If you need help setting up death in service cover give us a call on 02084327333 or email help@drewberry.co.uk.
The staff has been very knowledgeable and I have enjoyed working with Nadeem on setting up our plan.
Kim S
22/06/2020
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