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:
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.
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:
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:
The cost of Death in Service Cover depends largely on the profile of your employees. Major factors that determine premiums include:
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.
Health Services Company
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 email@example.com.
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.
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.
In most cases you’ll need a discretionary trust. However, there are two main options:
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.
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.
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.
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:
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.
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:
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.
However, a key difference from Death in Service is that insurers underwrite Relevant Life Cover individually, meaning they’ll require medical information.
HR and Office Manager at Profile Pensions
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.
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 death in service cover give us a call on 02084327333 or email firstname.lastname@example.org.
The staff have been very knowledgeable and I have enjoyed working with Nadeem on setting up our plan.