Death In Service Vs Life Insurance

30 July 2018

"I don't need life insurance; I've got death in service with my job."

This is a common misconception, however death in service can be quite different to life insurance and doesn't usually offer the same amount of financial protection as a life insurance policy could. 

What is death in service and how does it work?

  • Death in service is an occupational benefit provided by some employers
  • It is not compulsory for employers to offer death in service and you do not qualify for this cover at all if you are self-employed
  • Death in service covers the employee, not their partner.  For a couple, this may leave a protection shortfall unless the partner has made other arrangements
  • If you are entitled to death in service, it could pay out a lump sum (between two and four times your annual salary) in the event of your death. You don’t have to be at work for the policy to pay out and your death doesn’t have to be work-related, you just have to be on the payroll
  • Check with your employer if you do not know what you are entitled to receive
  • It is normally provided at no cost to the employee and the benefit would be paid tax free in the event of a claim
  • If you change  jobs, your new employer may not offer death in service, or the salary multiple could be different.  Should you need to apply for private life insurance at a later date, it could be more expensive or difficult to obtain cover
  • The amount of cover is based on a multiple of your salary. It may or may not be enough to meet your protection needs
  • As it is an occupational benefit, you can only nominate a beneficiary. While it would be unusual for trustees not to pay the benefits as you have asked, this remains a request rather than a binding obligation

What is life insurance and how does it work?

Life insurance is designed to help protect your family financially by paying out a lump sum if you die during the length of the policy. If you change jobs, or even retire your life insurance will continue until you die or your policy comes to an end. Cover can be arranged on a joint or single life basis to suit your needs.

You can also opt to put your life insurance in Trust so you have the peace of mind that the pay-out will go to the people you intend. 

Life insurance is not a savings or investment product and has no cash value unless a valid claim is made.

You can choose between:

  • Life Insurance - Your chosen cash sum could be paid out if you die during the length of the policy. It could be used to help protect the family's lifestyle and everyday living expenses or help to pay the mortgage (interest only).
  • Decreasing Life Insurance - Designed to help protect a repayment mortgage so the amount of cover reduces roughly in line with the way a repayment mortgage decreases. Meaning your loved ones could continue to live in the family home without worrying about the mortgage.

You can choose the amount of cover and length of cover that suits your needs and you can also choose to add Critical Illness Cover for an extra cost.