What is death in service?
'Death in service' is a benefit that some people get from their employer. It works in a similar way to life insurance. If you die while working for your employer, then they will pay out a fixed sum to your dependents. While this is a reassuring benefit for you and your loved ones, it’s not quite the same as life insurance in terms of how it works and how it pays out.
Some employers offer special benefit packages to their workers in the event of their employees' deaths. Death in service is one of such benefits. If you die while working at the company, then your dependents will receive a sum of money, usually related to your annual salary, as a payout to help them should the worst happen.
Not every employer offers special benefits packages, and not every package will include death in service, so you should check your contract and paperwork from your employer carefully to see if you have it. Death in service amounts will also differ between employers.
How does it work?
Death in service commonly pays out a tax-free sum to your dependents if you die while employed. This sum varies according to the package you’ve got, but it’s often somewhere between two and four times your salary. That means if you earn £40,000 a year, your death in service benefit could come to £80-160,000.
The name ‘death in service’ can sound a little misleading, so let’s clear up just what it really means: you don’t have to literally die while you’re in the office, or as a direct result of working, for death in service to pay out. It just means that you need to be employed by the company at the time of your death.
The advantages of this include the fact that it’s usually free as part of your work benefits, and gives your dependents a tax-free lump sum when you die. For a more detailed description of the details, see the Unison guide to Death in Service. However, there may be conditions attached to your death in service benefit that could leave you at a disadvantage.
Do I have death in service cover?
The best way to check if you have death in service cover is to consult your contract, employer, or the benefit provider that they use, to ask them about the specifics of your benefits package. They will be able to tell you if you have death in service cover. It can be linked to your work pension scheme, so find out if you need to enrol in the pension scheme before you can earn the death in service benefit. Try checking Money Helper to see about how these two benefits can be linked.
When you investigate, it’s worth asking a few extra questions about your benefit. For instance, do you have control over who receives the payout, or does the employer decide? Can it be used to pay your mortgage if you die? And is the payout as good as you would have with a dedicated life insurance policy?
Do I need death in service and life insurance?
To see the differences between death in service and life insurance, we need to compare what they both offer:
Both will pay a lump sum to your loved ones when you die, however, with death in service your employer will set the sum to be paid out. Because death in service doesn't take into account factors like mortgage, kids, or other expenses or debts, it may be sensible to have an independent life insurance policy as well as death in service benefits to make sure you are leaving your family enough money to get by without you.
Once you've discovered what your death in service package offers, you can then work out if extra is needed to top this sum up to an amount your family may need. Doing an assessment of all of your outgoings can help you arrive at a figure, or you can use our life insurance calculator.
Even if you find that your death in service payout will be enough to contribute to your family after you're gone, remember that you can’t usually take your death in service benefits with you when you change employers. So if you leave work, you lose the benefit. This is why it’s good to have your own independent life insurance policy to give your family a safety net should your next employer not provide this type of cover as part of your contract with them.
