Death in Service Insurance

What is death in service insurance?

Death in service insurance is provided by the employer and covers some or all of the employees within a business for the event of their death. Death in service insurance pays out in the form of a tax free lump sum to a named beneficiary, which is usually the family or dependents of the insured individual.

Cover applies while the employee works for you, wherever the death happens, whether at work, at home or on holiday. It’s one of the most common employee benefits in the UK and usually sits alongside a workplace pension and group income protection.

How does death in service insurance work for businesses?

Death in service insurance works in a very straightforward manner for businesses. Our team helps you find the right plan, with the right level of cover for your employees. Once we’ve found the perfect deal, you’ll agree to pay monthly, quarterly, or annual premiums to continue your cover for as long as you desire.

Before you can set up death in service insurance, you’ll need to gather employee details (age, DOB, sex, job title, etc), establish the level of cover you need, determine the length of cover you’re after and give this information to a trusted independent specialist in employee protection. Our guide to the factors that affect the cost of group life insurance explains how these details shape your premium.

The Dragonfly Crowd team specialises in customer care, ensuring that we find the ideal insurance plan for businesses and individuals alike. Our expertise allows us to search a wide panel of insurers, with your specific interests and priorities in mind, finding a deal to suit your needs and help you to provide death in service insurance, a very attractive and respectable employee perk.

We also offer services for private medical insurance, critical illness insurance and group income protection insurance. These are some further ways you can protect yourself, your business and your employees.

How much does death in service pay out?

Death in service usually pays a multiple of the employee’s annual salary, most commonly between two and four times. The employer chooses the level when the scheme is set up, and it’s normally the same multiple for everyone, or for everyone in a particular group such as directors or senior staff.

For example, an employee earning £35,000 with cover at four times salary would leave a lump sum of £140,000 to their beneficiaries. The payment is usually made quickly, because it’s paid through a trust rather than as part of the employee’s estate.

Is death in service taxable?

For the family: In most cases the lump sum is paid free of income tax. Because it’s paid through a discretionary trust, it doesn’t normally form part of the employee’s estate, so inheritance tax doesn’t usually apply either.

For the employee: Death in service isn’t treated as a benefit in kind, so employees don’t pay tax on the premiums and it doesn’t need reporting on a P11D.

For the business: Premiums paid by the employer are normally an allowable business expense, so they can usually be offset against corporation tax.

There is one exception worth knowing about for higher earners. Most death in service schemes are registered with HMRC as pension schemes, so the lump sum counts towards the lump sum and death benefit allowance, currently £1,073,100. Anything paid above that can be taxed. Excepted group life schemes are set up differently and don’t count towards the allowance, which can make them a better fit for senior staff with large pension pots.

The benefits of death in service insurance for employers and employees

Death in service insurance has the following benefits:

• Peace of mind – Your employees will know that even if the worst occurs, their family and/or dependents will be protected financially, allowing for peace of mind that family will be provided for no matter what. This also leads to increased productivity, as employees can focus on what they’re best at.

• Tax-deductible – Death in service premiums are tax deductible as they are considered a business expense, which helps you to reduce the taxable income of your business.

• Employee benefit – Offering death in service is an excellent employee benefit, which is likely to help attract top talent to your business. This may increase the success of your business in the long term, and is likely to increase employee satisfaction. Read more about how group life insurance could benefit you.

FAQs about death in service insurance

What are the exclusions for death in service insurance?

Whilst every plan differs, common exclusions include suicide, substance-abuse related deaths, criminal activity-related deaths, pre-existing medical conditions and high risk activities. As mentioned, every plan differs, so be sure to communicate your situation and needs with us to find the perfect deal and ensure eligibility.

Who receives the death in service benefit?

The death in service benefit is paid to whoever is named as the nominated beneficiary. This is usually the spouse, partner, or children of the employee. The benefit can also be paid to the employee’s estate if nobody is named. Because the scheme is held in trust, the trustees make the final decision, guided by the employee’s expression of wish form, so it’s worth employees keeping theirs up to date.

Is death in service insurance taxable?

Death in service insurance is generally not subject to income or inheritance tax. However, this depends on the type of plan and the individual themselves. Death in service premiums paid by a business are usually not taxable.

Is group life insurance the same as death in service?

Group life insurance and death in service insurance are interchangeable terms for the same type of insurance. 

What happens to death in service if I leave my job?

Cover ends when you leave the employer. It doesn’t move with you to a new job, so if you have dependants it’s worth checking whether your new employer offers death in service or whether you need personal life insurance in the meantime.

Does death in service cover pre-existing medical conditions?

Usually, yes. Most group schemes cover employees up to the free cover limit without asking medical questions, so staff with pre-existing conditions can normally be included. Employees with cover above that limit may be asked for medical information.