How Much Does Death In Service Cover Cost?
The cost of Death in Service Cover depends largely on the demographics of your staff.
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 Death in Service Insurance 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 riskier roles (e.g. manual work, working at heights or underwater) compared to a 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 more people, in fact in certain cases insurers offer premium discounts for groups above a certain size. Check with an adviser to see if you qualify.
While it’s true that prices can vary considerably depending on your organisation, we’ve laid out example premiums from two recent clients in the table below.
However, although these are good to give you a rough idea of the cost of cover, for personalised quotes and expert advice please don’t hesitate to get in touch on 02074425880.
How Does HMRC Tax Death In Service Insurance?
Death in Service Insurance is generally considered 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 your staff to pay arising from Death in Service Cover.
Do You Pay Inheritance Tax On Death On Service?
In most cases, no. When the policy is set up correctly, the benefit is paid into a trust. This trust must be in place before the policy goes live.
The trust then distributes the funds to the employee’s family. This sidesteps any inheritance tax issues on the payout and means it doesn’t become part of the deceased employee’s estate.
Which Type Of Trust Should I Use?
You need to have an appropriate trust arrangement in place alongside your Death in Service Cover.
There are two ways to do this. Firstly, you could set up and administer your own trust. Alternatively, you can use an insurer’s existing master trust (where available).
Employer Trusts
- The most bespoke option as it’s fully controlled by you, the employer.
- This means all administration relating to the trust, including registration with HMRC and appointing trustees, is down to you.
- You’ll need to stay up to date with new legislation that could impact your trust and make any changes accordingly.
While this option is the most tailored option, it’s also a lot of additional work and responsibility.
Master Trusts
Alternatively, most insurers already have readymade ‘master trusts’ available. You don’t therefore need to implement your own trust.
Benefits of a master trust include:
- Independent scheme trustees take care of administration, including reporting to HMRC, so you don’t need to worry.
- The insurer and the trustees it appoints takes care of trust management, including keeping up to date with trust law and dealing with claims.
However, this is a less bespoke option. You can’t therefore tailor it to your organisation’s needs.
Before opting for a master trust, we recommend you seek the appropriate legal advice. This is to ensure it’s right for your company.
