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Death in Service Insurance for employers pays a lump sum to an employee’s chosen beneficiaries if they die while working for you. It is one of the most common employee benefits employers set up for their people.
This guide covers how it works, what it costs per employee, and how it’s taxed, including the change to inheritance tax on pensions from April 2027. If you would rather talk it through, our specialist advisers can help on 02074425880.
Death in Service is a type of Life Insurance benefit that an employer provides for its employees. It pays a lump sum (usually a multiple of salary) to the employee’s nominated beneficiaries if they die while under contract with your business. It’s also known as Group Life Insurance.
Beneficiaries can use the money however they like, and is often used to:
Death in Service pays a multiple of salary, usually two to four times, and the employer arranges and pays for the policy. Life Insurance pays a set amount, for example £150,000, under a personal policy the individual owns.
With Death in Service, the employer chooses the policy type and level of cover. With personal Life cover, the individual chooses how much their beneficiaries receive and keeps the policy even if they change jobs.
Death in Service pays out a lump sum if an employee dies while working for your business. The death doesn’t need to be work-related for their family to claim.
The policy typically covers between two and four times annual salary. For example, if an employee earns £30,000, their beneficiaries may be entitled to between £60,000 and £120,000.
Death in Service gives employees reassurance that their loved ones would receive financial support if the worst happened, easing some of the pressure on families at an emotional time.
And if the benefit is written in trust, it can be paid out quickly upon an employee dying. So, not only do beneficiaries receive a lump sum to help with finances, it’s not subject to probate, meaning there are few delays in receiving the funds.
When implementing a Death in Service policy, you take out a policy on behalf of your staff. You’ll then choose a level of cover.
If an employee dies while working for you, the insurer pays a lump sum to their nominated beneficiaries. For most employees that payment is free of income tax, and its purpose is to help their dependants cope financially.
The Death in Service benefit is usually a multiple of an employee’s gross annual salary, usually between two to four times. On a £30,000 salary, a typical payout would be between £60,000 and £120,000.
The employee’s nominated beneficiaries will receive the Death in Service payout. This is whoever the employee named on their beneficiary form when you enrolled them. It might be a spouse, children or another dependant.
Most claims are paid within 60 days of the insurer being told about the death, and some insurers pay faster. How quickly it happens depends on how soon the insurer is notified and whether they have the right information.
The employee’s loved ones will most likely need:
Death in Service isn’t a mandatory employee benefit, so you have no legal obligation to provide it. However, it’s often one of the core benefits a company sets up for its staff.
Setting up Death in Service Insurance for employers comes down to a few key decisions: who is eligible, what free cover limit applies, whether the scheme is registered or excepted, what cease age to set, and which insurer to use.
Generally, your company needs at least three employees to set up a Death in Service scheme. You also need to confirm your staff meet the insurer’s criteria:
Group policies usually include a free cover limit (FCL). Up to that amount, employees are covered without giving any medical information. This can help staff who might struggle to get cover on a personal plan.
You can choose a registered or excepted plan for your Group Life scheme. The choice affects how a claim is handled and which type of trust the policy sits in, as well as how the benefit is treated for tax, which we cover below.
Cover lasts until the policy’s cease age. This could be employees’ State Pension Age, which varies by individual, or an age you choose when you take out the policy. Cover also ends when an employee leaves your organisation.
The maximum cease age for Death in Service is 75. The higher you set it, the higher your premium.
If your business doesn’t have enough employees for a Death in Service scheme, Relevant Life Insurance is an alternative option. It can be set up for a single employee, and offers similar tax benefits (as the policy is owned and paid for by the business). You also get corporate tax relief on the premiums.
Joe Toft
Senior Employee Benefits Consultant
In our 2025 Employee Benefits Survey, only 12% of UK employees were truly happy with their benefits, and 18% said they wanted their employer to provide Life Insurance.
Tailoring your benefits to what employees want helps them get more value from their employment perks.
Providing Death in Service shows employees you value them. It can also help you to:
58% of UK adults have no Life Insurance, according to the FCA, and the cost can be a common reason people go without. When you pay for cover as the employer, your employees don’t pay towards it.
Unlike personal Life Insurance, eligibility under a group scheme usually doesn’t depend on an individual’s health or lifestyle. Up to the free cover limit, staff can be covered without giving medical evidence. For example, if your policy’s free cover limit is £750,000, only employees whose cover is above that amount would need medical underwriting.
The cost of Death in Service cover depends on your employee demographic, and we can only give an estimate until an insurer has quoted. But as a rough guide, Death in Service Insurance typically costs employers between £10-£30 per employee per month, based on quotes we gathered.
The main factors that affect the price most are your employees’ ages and salaries, the level of cover you choose, and your industry:
Here are example costs based on the cheapest quotes for two different businesses.
Software Company | Health Services Company | |
|---|---|---|
Location | London | Barnsley |
Employees | 10 | 100 |
Cease Age | State Retirement Age | State Retirement Age |
Level of Cover | 4x Annual Salary | 2 x Annual Salary | Cost Per Employee | £31.97 per month | £10.03 per month |
These quotes are for illustration only. For help comparing quotes from UK insurers, call 02074425880 or email help@drewberry.co.uk. For a more detailed breakdown, see our guide to Group Life Insurance cost per employee.
Death in Service is not usually not for the employee or their beneficiaries, but there are some limits. For employers, premiums are treated as a business expense, so they are eligible for corporation tax relief. The cover is not a P11D benefit in kind, so employees don’t pay extra income tax for it.
For a registered scheme, the payout counts towards the “lump sum and death benefit allowance”, which is generally £1,073,100. Anything above the allowance can be taxed. Payouts from excepted schemes generally don’t count towards it. Read the rules on lump sum allowances on GOV.UK.
Generally, a Death in Service payout is not subject to inheritance tax (IHT), but it depends on the type of scheme, and the rules for pensions are changing from April 2027.
When a claim is made, the trust distributes the payout to the employee’s beneficiaries. When you communicate your scheme, make sure employees nominate their beneficiaries. This helps the insurer pay a claim promptly.
In most cases you’ll use a discretionary trust to set up your Death in Service benefit. You have two options:
Having your own trust gives you the most control, but you are responsible for all the admin and for keeping up with changes in trust law. A master trust is a ready-made trust the insurer owns, holding the policies of many companies at once. The insurer handles the admin, which is why many employers choose this option for easier setup and management.
It can be difficult to know which options are most suitable for your business, so we recommend speaking to a specialist. If you need help, call 02074425880 or email help@drewberry.co.uk.
Because it is a valuable benefit, Death in Service is normally the first policy an employer sets up. It’s a good foundation for a wider benefits package, which you can build on.
Business Health Insurance covers private healthcare, giving staff quicker access to treatment and potentially getting them back to work sooner.
Group Income Protection, also known as Group Sick Pay Insurance, pays part of your workers’ wages if they can’t work because of accident or sickness. It works alongside your company sick pay policy.
Group Critical Illness Cover pays a lump sum if staff are diagnosed with an illness listed in the policy. The most common claims are for cancer, heart attacks and strokes.
To talk to one of our specialist benefits consultants, call 02074425880 or email help@drewberry.co.uk.
Generally, Death in Service payouts don’t form part of an employee’s estate. The payout is usually held in trust, and the trustees pay it to the employee’s beneficiaries, so it is not normally treated as part of their estate. From 6 April 2027, unused pension funds and pension death benefits come into the estate for inheritance tax, but Death in Service benefits paid from a registered pension scheme are excluded. Excepted schemes sit in trusts with their own rules, so inheritance tax charges can apply.
This is general information, not tax advice.
Most Death in Service schemes pay a multiple of the employee’s salary, commonly two to four times. On a £30,000 salary, that would be £60,000 to £120,000. The multiple is set by the employer and varies by scheme.
It depends on the individual. An employee’s Death in Service cover ends when an employee leaves your company, whereas a personal Life Insurance policy continues with them regardless of their employer. Many people choose to top up their employer-paid plan with a personal policy for extra protection.
Personal Life policies often include a Terminal Illness Benefit, which pays out if the policyholder is diagnosed with less than 12 months to live. Group plans vary on terminal illness cover, so it’s important to check what your company scheme includes.
A company pension scheme can sometimes include a Death in Service benefit, which means an employee who opts out of the Workplace Pension enrolment has no access to it. However, most employers choose to offer Death in Service as a standalone benefit.
Both Death in Service and Personal Life Insurance aim to support a family financially if the policyholder dies. However, Death in Service is set up and paid for by an employer, with cover based on a multiple of annual salary. Life Insurance is a personal policy that pays a set sum, and is paid for by an individual.
The UK has several major Death in Service providers, each with its own structure and setup. The “best” provider for your business won’t necessarily be the best for another, as it depends on your needs and circumstances, so it’s important to compare schemes carefully.
Compare providers in our Death in Service comparison guide.
Setting up and maintaining company benefits can be a headache. Our team of specialist regulated advisers can take the workload off your desk and make sure your benefits are set up properly.
We help businesses of all sizes across the UK set up and manage their benefits. Get in touch today on 02074425880 or email help@drewberry.co.uk.
Employee benefits can be a headache. But our specialists do this day-in, day-out, offering first class service when you need it most. Here’s why you should talk to us:
If you are unhappy with our service, we have a complaints procedure, details of which are available upon request. If you are unhappy with how your complaint has been dealt with, you may be able to refer your complaint to the Financial Ombudsman Service (FOS). The FOS website is www.financial-ombudsman.org.uk.
Drewberry is a trading name of Brown & Brown Health and Employee Benefits Ltd which is authorised and regulated by the Financial Conduct Authority. FCA Number 312878. Registered in England and Wales (company number 3910149). Registered address: 7th Floor, Corn Exchange, 55 Mark Lane, London, EC3R 7NE.
