Why provide Death In Service insurance

Death-In-Service Cover provides a lump sum benefit should an individual die whilst employed by your organisation. They do not have to die while at work, or as a result of a work activity, they just have to be on your payroll.

This can be a valuable benefit, but some employers are more generous than others and this can be an added attraction to help attract and retain staff.  Often, the cover is linked to the company pension, so you would have to be a member of the pension scheme to qualify for any death-in-service pay out.

In the event of the employees death, the benefit is paid to dependents free of any inheritance tax.  Who receives the payment is at the discretion of the trustees but they will be guided by the wishes of the employee assuming an expression of wishes or nomination of benefits form has been completed.

Whilst the benefit cannot be assigned to a mortgage, the employee’s family can use the money to pay down any mortgage debt. 

Pros of death-in-service benefits

• Insurance is usually free as part of a benefits package.
• The lump sum pay out is tax free.
• Employees can be entited to between two and four times annual salary – sometimes more.

Cons of death-in-service benefits

• Employees might not have total control over who gets the tax-free pay out
• Employees who are not members of the company pension scheme might not qualify
• Cover ceases immediately an employee leaves the service of the company