I currently have a personal Life Insurance policy, but I just switched jobs and my new employer offers a Death in Service scheme. If I join the scheme, is it worth cancelling my personal policy to save a bit of money on my premiums? Is it better to have Death in Service or Life Insurance?
While it might seem unnecessary to keep two different types of Life Cover, there are very valid reasons for why it may pay to keep your personal policy even if enrolled in your Company Life Insurance scheme.
Individual Life Insurance is a simple product to cover your own life or, in the case of a Joint Life policy, the life of you and another person. It pays out a cash lump sum should the worst happen.
The amount you are covered for is set either to a figure of your choice or in relation to the cost of your mortgage. While the policy is in place, it is your responsibility to pay the premiums for your cover with your income after tax.
You will be covered by your policy up to an age of your choosing, providing you continue to pay your premiums. If during this time you are diagnosed with a terminal illness or pass away, your insurance provider will pay out the lump sum you are insured for.
If your policy is written into trust, the lump-sum from your Life Insurance will be paid into a trust which will then be distributed to your beneficiaries.
If your policy is not written into trust, however, the lump sum will be paid into your estate where it may be subject to inheritance tax.
A Death in Service policy, unlike a personal policy, is bought by a company to cover their employees.
It is an employee benefit, meaning the employer pays the premiums for the policy, which is for the benefit of the employee and their family.
Employees cannot choose how much they are insured for – the amount they are covered for is usually 2 to 4 times the employee’s annual salary.
The employee will be covered by this policy as long as they are working for the company that provides it. If they pass away or are diagnosed with a terminal illness during this time, the Death In Service payout is routed first into a trust owned and controlled by the company, avoiding inheritance tax on the benefit.
It is then the responsibility of the employer to distribute the lump sum to the employee’s beneficiaries.
Death in service cover stops when you cease your employment…
One of the main difficulties of a Death In Service policy is that you will only receive cover as long as you are still employed by the company.
If at any point you are interested in a career change or if you retire, you will lose your Life Cover.
That’s why you need to have a personal policy to fall back on. If you have a mortgage or loved ones that rely on you financially having suitable personal life cover ensures that regardless of your state of employment you know they would be financial secure should you pass away.
Death in Service cover is not tailored to your specific circumstances and the amount that you are covered for is usually a lot less than you could cover yourself with a personal policy.
Three times the average salary in the UK is £85,800, but the average UK household debt is £84,412, which would leave very little left over to meet your family’s everyday expenses and your funeral costs should you pass away.
While a Death In Service policy may fall short in certain areas, it certainly shouldn’t be overlooked.
The payout from a company Life Insurance policy can give your family’s finances a much needed top up if you pass away. At the same time, many Death In Service policies offer additional benefits and services that can be very useful, like access to a virtual GP and a will writing service.
While a Death In Service policy has its benefits, it can’t beat the reliability of a personal Life Insurance policy. A personal Life Insurance policy is guaranteed to protect your loved ones for as long as you need to and is easily affordable.
Head of Employee Benefits at Drewberry
I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.