Death In Service Insurance

How Does Death In Service Insurance Work?

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.

Registered Vs Excepted Group Life Insurance

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.

What Is The Eligibility Criteria?

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:

• Within the minimum and maximum entry ages of the policy
• Eligible to work in the UK and have a UK employment contract
• An active employee at the company.

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.

Nick Nelms
Senior Consultant, Employee Benefits

How Long Does Cover Last For?

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.

How Long Does It Take To Pay Out?

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:

• The name of the deceased
• Date and cause of death (as stated on the death certificate)
• The policy number
• Your name and your relationship to the deceased, as well as your contact details.

Is Death In Service Insurance Mandatory In The UK?

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.

Benefits of Death In Service Insurance

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.

Benefits For Employers

By providing Death In Service, you can show you value your team and stand out against the competition. It can also help to:

• Attract and retain your best talent
• Improve employee engagement and morale
• Position yourself as a top employer in your industry
• Reduce absenteeism, especially when coupled with an Employee Assistance Programme (EAP).

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.”

Benefits For Employees

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:

• Employee Assistance Programmes (EAP)
• 24/7 Digital GP service
• Physiotherapy
• Mental health & counselling helpline
• Nutrition and fitness programs.

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.

How Much Does Death In Service Insurance Cost?

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:

• Employees’ ages
  Just like an independent Life Insurance policy, age impacts the cost of premiums. Younger staff will cost you less to insure, while older employees have an increased risk due to age
• Staff salaries and job roles
  You can set up varying levels of cover for workers (e.g. more cover for senior members than junior members)
• Your industry
  Industries that pose a greater risk of injury, such as construction, pay more for cover
• Number of staff
  The more staff you wish to provide cover to, the more the scheme will cost.

While premiums vary, we’ve got some example costs based on the cheapest quotes for two recent clients.

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 help@drewberry.co.uk

Is Death In Service Taxable?

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.

Is Inheritance Tax Paid On The Death In Service 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.

Which Type Of Trust Should Be Used?

In most cases, you’ll need a discretionary trust to set up your Death In Service benefit. However, there are two main options:

• A trust you set up, own and administer as an employer
• The insurer’s master trust.

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 help@drewberry.co.uk.

Nick Nelms
Senior Consultant, Employee Benefits

How Does Death In Service Fit With Other 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:

• Group Health Insurance
  Pays for private healthcare, offering your staff the best treatment exactly when they need it, potentially getting them back to work faster.
• Group Income Protection
  Also known as Group Sick Pay Insurance, it pays out a proportion of your workers’ wages if they can’t work due to accident or sickness. It works alongside and complements your company’s sick pay policy
• Group Critical Illness Insurance
  Critical Illness Cover pays out a lump sum to your staff should they become critically ill with an illness listed in the policy. The most common claims are for cancer, heart attacks and strokes.

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 help@drewberry.co.uk.

Who Are The Best UK Group Death In Service Providers in 2023?

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:

• 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. It’s also important to look at the additional benefits they offer above the core cover. 

Compare Death in Service Insurance Quotes And Get Expert Advice

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 help@drewberry.co.uk.

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 protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

• We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
• You’ll speak to a dedicated expert from start to finish
• We are very proud of the 3640 and growing independent client reviews rating us at 4.92 / 5
• We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐
• Claims support when you need it most.

If you need help setting up a company paid death benefit for employees give us a call on 02084327333 or email help@drewberry.co.uk.