What Is Death In Service Insurance? Do We Need It? How Much Does It Cost?

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21-07-2020

Death in Service Insurance provides your employees’ loved ones with a cash lump sum should an employee die while working for your organisation.

Death in Service (which is also known as Group Life Assurance):

  • Offers a multiple of earnings as a death benefit (usually between 2 and 4 times gross income).
  • Is paid out tax-free thanks to the trust set up with the policy.
  • Pays out regardless of where the death occurs, whether this is on the job, at home or even overseas.
  • Is one of the cheapest employee benefits on offer.

Is Death In Service Insurance Compulsory?

Although it tends to be the first benefit companies offer, the answer is no. Death in Service Insurance is not mandatory in the UK.

However, while it’s not something you must provide, there are a number of benefits of having it in place. Taking out a company scheme helps both staff and the business alike.

Benefits For Employers

According to Investors in People…

  • Close to 20% of UK workers say a lack of benefits is making them unhappy in their jobs.
  • More than 2 in 5 UK employees consider company benefits to be one of the most important factors which attract them to a new company.

Meanwhile, the Chartered Institute of Professional Development reveals that 54% of people currently looking for a new job are looking for better pay / benefits, citing this as the main reason for their move.

Clearly, employee benefits are important to workers. This means they can:

  • Help attract and retain employees
  • Improve employee engagement
  • Reduce absenteeism, especially when coupled with an employee assistance program (EAP).

Benefits For Employees

Life Insurance provides financial security for your loved ones. However, a recent Drewberry survey found that only around 1 in 3 UK adults actually had it.

Many without Life Insurance cited cost as a major barrier to uptake. Having an employer pay for it could therefore be a major weight off employees’ minds.

Workers with pre-existing medical conditions could also benefit from company Death Insurance. This is because group policies aren’t usually medically underwritten unless a worker exceeds the free cover limit. Pre-existing conditions are therefore usually discounted.

Moreover, you write Death In Service policies into trust from the outset. This means, should a claim arise, the employee’s loved ones receive the payout free from inheritance tax.

Additional Benefits

In addition to its core purpose of paying out should an employee die there are a number of everyday tangible benefits which are often provided for free alongside a business Death Insurance policy:

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Can We Get Death In Service Insurance?

You’ll usually need at least three full-time employees to get a Death in Service scheme in place.

Employee Eligibility

Employees also need to be eligible to join the scheme. You’ll have to check that employees are:

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

Some employers add additional terms before including employees in policies. For example, this might be working for the organisation for a set period or being above a certain pay grade / status within the business.

If you want, you can also set up Death in Service Insurance so that senior staff get a larger multiple of salary than more junior staff members.

Relevant Life Insurance For Micro Businesses

As mentioned, you’ll need at least three staff for Death in Service Insurance.

Organisations with fewer than three staff are generally classed as micro businesses. If they still want company Life Insurance, they may benefit from Relevant Life Cover instead.

What is Relevant Life Insurance?

  • Relevant Life Insurance is a tax-efficient way to protect the lives of individuals within a business.
  • Similar to Death in Service Cover — the business owns and pays for the policy, while the family receives a payout should the worker die during the policy term.
  • However, a key difference is that insurers underwrite Relevant Life Cover on an individual basis, meaning they’ll require medical information.
  • This is opposed to company Death in Service, where medical information is not normally required unless an individual exceeds the free cover level.

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.

Software Company Health Service Company

Location

London

Barnsley

Employees

10

200

Cease Age

State Retirement Age

State Retirement Age

Level of Cover

4 x Annual Salary

1 x Annual Salary

Cost
Per Employee

£29.35 per month

£2.52 per month

Premiums correct as of February 2020

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.

Which UK Death In Service Providers Are The Best?

As an independent employee benefits adviser, we have access to every UK insurer.

We’ll do all the heavy lifting comparing Death in Service quotes from the top UK insurers. Once we’re done, we’ll send you a personalised recommendation report summarising our research which lays out the insurer we think is best for you and your workers.

Policy Details & Additional Benefits

AIG

AIG offer competitive premiums with an innovative health and wellbeing app. Rated 4 / 5 stars on independent reviews website Trustpilot.

  • Free cover level: £1.25 million
  • Minimum lives: 3
  • Master trust: Available

AIG Benefits

  • 24 / 7 Telephone or Video GP Service
  • Mental Health Program
  • Online Fitness Program
  • Nutrition Consultations
  • Access to Best Doctors
Aviva

Aviva is a household name whose settlement of Group Insurance claims is among the fastest in the UK market.

  • Free cover level: £5 million
  • Minimum lives: 5
  • Master trust: Available

Aviva Benefits

  • Access to Best Doctors
  • RedArc Personal Nurse Service for claimants
  • 24 / 7 Qualified Counsellor Stress Helpline
Canada Life

Canada Life has 40 years of experience in the group risk market protecting almost 3 million employees across 21,000 companies nationwide.

  • Free cover level: £1.25 million
  • Minimum lives: 5
  • Master trust: Available

Canada Life Benefits

  • Personal Nurse Service for Claimants
  • Second Medical Opinion Service
Legal and General

Legal & General is a household name offering competitive premiums with market leading rehabilitation support services. Rated 3.4 / 5 stars on independent reviews website Trustpilot.

  • Free cover level: £5 million
  • Minimum lives: 10
  • Master trust: Available

Legal & General Benefits

  • 24 / 7 Counsellor Telephone Support Service
  • Trained Nurse Medical Advice Helpline
  • Legal Advice Service
Metlife

MetLife is a global provider which is proud of its claims record, paying 99% of Group Life claims within 5 days and 80% within 3 days.

  • Free cover level: Determined by underwriting
  • Minimum lives: 3
  • Master trust: Available

MetLife Benefits

  • Up to six face-to-face counselling sessions a year
  • Telephone support helpline, 24 / 7 / 365
  • Practical probate support from trained legal consultants to help the relatives of a deceased employee deal with practical issues, from registering the death to managing the estate
Unum

Unum is a leading employee benefits provider, protecting more than 1.4 million people in the UK. In 2018, it paid claims worth £314 million.

  • Free cover level: £15 million
  • Minimum lives: 20
  • Master trust: Available

Unum Benefits

On a Group Life Insurance policy, Unum’s additional benefits are an optional extra for an additional premium. This gives you access to the insurer’s Help@hand service, including:

  • Remote GP Service
  • Second Medical Opinion Service
  • Mental Health Support Program
  • Physiotherapy Sessions

How Does Death In Service Work Within An Employee Benefits Package?

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 for any good employee benefits package, Death in Service Cover provides a solid foundation for other benefits such as:

  • Group Critical Illness Cover
    Pays out a tax-free lump sum if an individual is diagnosed with a specified critical illness such as cancer, heart attack or stroke.
  • Group Income Protection
    Also known as Group Sick Pay Insurance, it works alongside your company’s sick pay policy to offer staff a monthly income if they’re medically unable to work.
  • Business Health Insurance
    Pays for healthcare in private hospitals, providing your staff with the best care exactly when they need it. By reducing waiting times, workers potentially get back to work faster.

Profile Pensions’ Death in Service Story

Here’s why Profile Pensions chose Drewberry to help with their group scheme.

“Getting Group Life Insurance was a no-brainer. Our employees get comfort from knowing it’s there and we’re proud to provide that. We work hard to provide good benefits to our staff and show a commitment to our employees, so introducing an employee benefit was really a logical step.”

Michelle Donlin
HR and Office Manager at Profile Pensions

Profile Pensions' Death in Service Scheme

Arranging Cover: Should I DIY Or Use An Adviser?

To set up Death in Service Insurance you have two options. Firstly, you can do it all yourself and go direct to the insurer. Secondly, you can let an employee benefits adviser, such as one of the team at Drewberry, do all this heavy lifting on your behalf.

That way, you can focus on doing what you’re best at — delivering your own proposition.

Yet, on top of requiring less effort on your part, there are also other key differences between using an adviser and going direct that it’s essential to understand.

Going Direct To An Insurer: The DIY Approach

Going direct to an insurer is known as a non-advised sale. This means it’s your responsibility to:

  • Do thorough market research
  • Negotiate the most competitive premium
  • Regularly review your policy to ensure it remains competitive.

Above all, as you’ve personally made the decision to take out the policy with an insurer, there’s no regulated financial protection should the policy be wrong for you and your workers. This responsibility is on your shoulders.

Using An Employee Benefits Adviser

Meanwhile, working with an adviser is very different.

Not only will an adviser take all the heavy lifting off your shoulders, we will also:

  • Undertake full market research for you
  • Use our scale and experience to negotiate the best premiums
  • Offer ongoing support with claims
  • Review the market regularly to ensure you retain the best deal.

Crucially, going through an employee benefits consultant is classed as an advised sale. That means you get all the regulated protection should your policy turn out not to be right for you.

For help and advice, don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

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Common Death in Service Questions...

  • What's The Difference Between Life Insurance And Death In Service?

    The main difference between Death in Service Cover and personal Life Insurance is who pays for it.

    With Life Insurance, you pay for it personally, from your bank account. For Group Life Cover, your company pays.

    However, there are also some other key differences.

    Firstly, you only receive employee death insurance for as long as you’re working at the company. If you move jobs, retire, are made redundant or otherwise leave your employer, then your cover ends.

    Individual Life Insurance, however, remains in place for the full term you choose unless you stop paying the premiums.

    Secondly, your employer typically decides how much Group Death Insurance you will receive. This is usually represented as a multiple of your salary (typical payouts are 2-4 times salary).

    Meanwhile, you’re free to choose how much life cover you want on an individual basis. This is why many people choose to ‘top up’ Death in Service Cover with Personal Life Insurance.

    Lastly, your Death in Service benefit is written into trust automatically. This means there’s no inheritance tax to pay on the benefit. You have to take this extra step to write personal Life Insurance into trust yourself.

  • How Much Life Insurance Can I Offer My Employees?

    While the typical level of cover insurers offer is a benefit level of between two and four times an employee’s basic gross salary, this isn’t fixed in stone.

    Some insurers offer as much as 15 times annual salary. Choosing to offer such a large benefit will of course increase premiums significantly per employee, however. As such, when it comes to the level of cover you offer, it depends on your requirements and what is deemed competitive in your industry.

  • Does Death In Service Come With Additional Benefits?

    Yes, in many cases Death in Service Insurance will come with additional benefits.

    These include:

    • Counselling and bereavement services, either face-to-face or over the phone, for the loved ones of a deceased employee
    • Telephone / video GP services
    • Access to physiotherapy and other benefits to help employees back to work if they’re off sick.
  • How Long Does It Take to Pay Out A Death In Service Claim?

    Once you make the insurer aware of the death and provide them with all the relevant paperwork, claims can be paid in as little as 7-14 working days. Most claims are settled within 30 working days.

    When making a claim, the insurer is likely to need to know:

    • The name of the deceased
    • The date and cause of death (as stated on the death certificate, which they may also need a copy of)
    • The policy number
    • Your name and your relationship to the deceased as well as your contact details.
  • Who Is Death In Service Insurance Paid To?

    Once the scheme is set up, you’ll receive a form for all employees to fill in and send back. This will state who they want the benefit to go to should they pass away.

    This is most commonly their next of kin, but could be any individual or UK charity.

  • Is Death In Service Linked To A Pension?

    Historically a company pension scheme had a level of Death in Service benefit associated with it. However, it was often limited to 1 or 2 years worth of income.

    Today, more businesses are now choosing to set up a separate Death in Service policy which is completely independent of the company pension scheme.

    Death In Service And The Pension Lifetime Allowance

    For high earners with large pension pots, it’s worth considering that a Death in Service payout could form part of their pension lifetime allowance.

    While this isn’t an issue for most people, it could be for those with large pension provisions already in place.

    If you exceed your pension lifetime allowance (currently set at £1,073,100), you’ll need to pay additional tax at 55% on pension income and Death in Service benefits.

    If this applies to anyone on your staff, speak to your adviser. They may be able to arrange an alternative for that individual or individuals.

  • Does The Death In Service Benefit Form Part Of Your Estate?

    No, Death in Service payouts are separate from your employees’ estates.

    You must set up a trust alongside Death in Service Cover. It is this trust which keeps the funds separate from your workers’ estates. Furthermore, a trust means the family gets the payout without needing probate and doesn’t need to pay inheritance tax on the benefit.

  • What Is A Free Cover Limit?

    The free cover limit is the amount of Life Insurance that can be secured on an individual worker before the insurer requires medical underwriting.

    These limits are typically set high, so for most people being offered 2 to 4 times their salary they won’t have to submit any medical details.

    Effectively, this can help those with pre-existing conditions or other factors that would likely increase Life Insurance premiums as an individual, such as being a smoker, get Life Insurance on the same terms as a healthy individual.

    Such individuals would likely struggle to get such favourable terms on the personal market, where applications are always underwritten.

    For those who exceed the free cover limit, their applications will have to be medically underwritten.

    However, thanks to high free cover limits for Death in Service Cover, it’s usually only managers and directors with large salaries and therefore large benefits who need to be concerned with this.

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Compare Death In Service Quotes & Get Expert Advice

Setting up and maintaining a competitive Employee Benefits package can be a bit of a headache. We do the heavy lifting for businesses of all sizes throughout the UK so they can focus on what they are best at: delivering their own proposition.

We are here to help make sure your Death In Service scheme is set up in the most appropriate way whilst obtaining the most competitive premium.

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.

Simply pop us a call on 02084327333 or email help@drewberry.co.uk.

The staff has been very knowledgeable and I have enjoyed working with Nadeem on setting up our plan.

Kim S
22/06/2020
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