Considering Death in Service (DIS) Insurance for your employees? You’re in the right place. This is one of the many Employee Benefits employers can set up for their staff.
But what exactly is it? How does it work? And what about the costs? As experts in the industry, we’re here to provide a rundown for you. Learn all you need to know about Death in Service cover and set up benefits your employees care about.
Death in Service is a benefit provided by an employer to their employees. It’s often referred to as Group Life Insurance.
It provides an employee’s family with a tax-free lump sum payment if they die while under contract with your business.
Death in Service covers the death of a worker while they work for your business. The cause of death doesn’t need to be work related to make a claim.
Depending on your policy options, Group Life Insurance typically covers between 2 and 4 times an employee’s annual salary. For example, if an employee earns £30,000, their beneficiaries may be entitled to between £60,000 and £120,000.
It’s easy to confuse Death In Service cover with personal Life Insurance policies. However, they are different products.
The main difference is that Death In Service schemes cover a multiple of an employee’s salary, whereas a Life Insurance policy covers a set amount e.g. £150,000.
Most of the top UK Death in Service benefit providers offer a variety of extra services. These are highly valuable, helping to add more value beyond the Death in Service benefit.
The best part? Insurers provide these additional benefits for no extra charge. Your employees may get access to:
The NHS is currently facing many challenges, such as long waiting lists. Providing your staff access to remote GP services through a Death in Service policy can prove invaluable. Our very own director, Andrew, found out first hand when he used a virtual GP service.
Not got enough time to read our guide fully, but want a quick expert overview of Death In Service? Our very own Nick Nelms, gives us the rundown on what you need to consider before taking out a policy for your staff. Just hit play! 👇
When setting up a Death in Service policy for your staff, you’ll decide what level of cover to offer. Our 2023 Employee Benefits Benchmarking Survey found that most employers opt for a payout of between 2-3 times an employee’s annual salary.
Should an employee die while working for you, the insurer will pay out a lump-sum benefit to their nominated beneficiary. The benefit is paid tax-free and helps dependents cope financially during hard times. We’ll explain more about how this benefit is taxed later.
When setting up a Group Life policy there are two options to choose from: Registered or Excepted. The choice you make will impact how a life insurance claim is managed if an employee dies. This is because it will determine which type of trust that a policy is placed into. We discuss trusts in more detail below.
To set up a Group Life Insurance policy, your company needs at least 3 employees to be eligible for cover. As an employer, you must also check that employers being added to the scheme are:
Some employers add extra terms to meet the eligibility criteria. For example, an employee must have worked for the company for a specific length of time or be above a certain pay grade.
If your business doesn’t have enough employees, we recommend Relevant Life Insurance. This is essentially the same as Death in Service (DIS) cover, except it can be set up for a single employee.
Relevant Life offers similar tax benefits to a DIS scheme as the policy is owned and paid for by the business. Corporate tax relief is therefore available on the premiums.
Senior Consultant, Employee Benefits
Group Life Insurance lasts until the predefined policy ‘cease age’. This could be set to an employee’s State Pension Age (which varies depending on the individual) or to an age specified when you buy cover.
To comply with pension regulations (which Group Life cover falls under) the maximum cease age for these policies is 75. The older you set the cease age, the higher the cost of your premiums. It also ceases when an employee is no longer in service with your organisation.
This will depend on how soon the insurer is made aware of an employee passing away. Most claims are typically paid out within 60 days of notification of death. Some insurers will pay out faster.
For a timely payout, an employee’s loved ones will need to make sure they have the right information when contacting the insurer. They will most likely need:
Death in Service cover is often the first benefit a company will set up for its workforce. But it isn’t a mandatory Corporate Benefit in the UK.
It’s the decision of the employer. You can choose to arrange a policy as an additional perk of employment. You have no legal obligation to provide it, but Group Life Insurance does offer a wide range of benefits.
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You can set up Death in Service cover so that senior staff get a larger multiple of salary than junior staff.
We recently asked UK employees about their benefits. 1 in 4 told us they were unhappy with their employer’s benefits package. Another 26% said that they wanted their employers to offer Death In Service.
Adding a benefit that employees actually want comes with a number of benefits for you and your staff.
By providing Death In Service, you can show you value your team and stand out against the competition. It can also help to:
One of our clients, Profile Pensions set-up Death in Service cover for staff as a security blanket should the worst happen.
George Hay, an employee at Profile Pensions, said “I’ve just had a child, so it means a lot to have peace of mind that if the worst happens, my family will be supported with four times my annual salary. It’s not something I hope will ever be needed, but it does take a big worry away for me.”
63% of people don’t have Life Insurance, with the main reason being the cost. Having an employer pay for the policy can help more people get cover without worrying about money.
And unlike a personal plan, acceptance for a company policy isn’t determined by an employee’s health or lifestyle. This means they’re guaranteed to get cover.
As well as a tax-free payout if an employee dies, most insurers offer supplementary (and usually free) support services as part of the policy. These can include:
The above is likely to prove invaluable to staff when it comes to their physical and mental health. Whether it’s talking to someone about their mental wellbeing or getting a GP appointment quickly, your employees can benefit significantly from the free perks provided.
The cost of Death in Service cover depends on the profile of your employees. As there are many factors for an insurer to consider, it’s only possible to provide an estimate. That said, it’s one of the most affordable group insurance policies to put in place.
These are the major factors which influence the total price of premiums:
While premiums vary, we’ve got some example costs based on the cheapest quotes for two recent clients.
Health Services Company
State Retirement Age
State Retirement Age
Level of Cover
4x Annual Salary
2 x Annual Salary
Cost per Employee
£11.80 per month
£3.50 per month
These quotes are for illustration purposes only. If you need help comparing quotes from all the UK insurers, get in touch by calling 02074425880 or email firstname.lastname@example.org
Typically, a Death In Service payment isn’t included in an employee’s estate. The benefit is set up so that the payout typically enters a discretionary trust. From there, the trustees distribute the funds directly to the employee’s beneficiaries, thereby preventing it from being regarded as part of the estate.
It all depends on the individual. If an employee leaves your company, they’ll no longer be eligible for the Death in Service benefit. But if an individual chooses to take out a personal Life Insurance policy, they’ll be covered regardless of their employment with you. We find that a lot of people ‘top up’ their employer-paid Death in Service payment with a personal policy.
A personal Life Insurance policy also usually includes a Terminal Illness Benefit , which isn’t included in group plans. This provides an immediate payout if the policyholder is diagnosed with a terminal illness with less than 12 months to live.
Some company pension schemes are set up to include a Death in Service benefit. This means that if an employee has opted out of their pension, they have no access to Death in Service. While it can be part of a company pension scheme, most offer Death in Service as a standalone benefit.
HMRC considers Death in Service cover as a business expense for employers. Therefore, premiums are eligible for corporation tax relief.
Also, it’s not considered a P11D / Benefit in Kind, so employees won’t have to pay any extra Income Tax for the benefit.
It works the same as a personal Life Insurance policy. The benefit goes into a trust before the policy goes live, so it’s not liable for tax.
When something is written into trust, it means it’s not included as part of an individual’s estate. Should an employee die, the benefit payable isn’t included in their estate and Inheritance Tax isn’t due. This provides an additional benefit to the employee’s family, as the full benefit is theirs.
When a claim is made, the trust distributes the payout to the employee’s beneficiaries. When introducing your Death In Service benefit, it’s important to ensure that your employees nominate their beneficiaries. This ensures speedy payment of a claim should the worst happen.
In most cases, you’ll need a discretionary trust to set up your Death In Service benefit. However, there are two main options:
The former offers a bespoke approach, providing your business with the most control. But that does mean you’ll be responsible for all aspects of admin and staying on top of any trust law changes.
Whereas an insurer’s master trust is a ‘readymade’ trust the insurer owns. This type of trust contains the policies of multiple companies at once. The insurer takes care of everything, so there’s less admin for the employer. For this reason, many of our clients opt for the insurer’s master trust for ease of setup and management.
Trusts can be a complicated topic to navigate, so we would always recommend speaking to an expert such as one of the team at Drewberry.
If you need help, don’t hesitate to get in touch on 02074425880 or email email@example.com.
Senior Consultant, Employee Benefits
Given its position as an affordable yet valued benefit, Group Life Insurance is often one of the first policies an employer offers.
As a cornerstone of any flexible benefits package, it can offer a solid foundation to introduce other insurances, such as:
Interested in knowing more about the workplace benefits you can provide to your team? Speak to an independent financial adviser, like one of our Drewberry™ experts. Give us a call on 02074425880 or email firstname.lastname@example.org.
As an independent Employee Benefits consultancy, we work with all the top UK insurers. We’re here to do all the heavy lifting, sourcing you quotes from the best group insurers, including:
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. It’s also important to look at the additional benefits they offer above the core cover.
Setting up and maintaining your company benefits can be a bit of a headache. But that’s where our fantastic team of expert regulated advisers step in. We can take the workload off your desk and ensure your benefits are set up properly.
We help businesses of all sizes across the UK set up their benefits, making sure they have the best policy for their staff at the most competitive price.
Our team has the knowledge and expertise to help set up the right benefits for your business. Get in touch with us today by calling 02084327333 or email email@example.com.
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 protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
If you need help setting up a company paid death benefit for employees give us a call on 02084327333 or email firstname.lastname@example.org.