What Is Death in Service Benefit?
Death in service benefit (also called group life insurance or employer life cover) is a workplace benefit that pays a lump sum to your nominated beneficiaries if you die while employed by the company providing the benefit. It is funded by your employer – you do not pay anything.
The typical payout is between two and four times your annual salary, though some employers offer up to eight times. For an employee earning £40,000 with a 4x multiple, this would mean a £160,000 payout.
How Does Death in Service Work?
Your employer takes out a group life insurance policy covering all eligible employees. Key features include:
- No medical required – You are typically covered automatically with no health questions, making it especially valuable for people with pre-existing conditions.
- Free to the employee – The employer pays all premiums as a business expense.
- Written in trust – Most schemes are set up under a discretionary trust, meaning the payout bypasses your estate and avoids inheritance tax.
- You choose beneficiaries – You complete an “expression of wish” form nominating who should receive the payout.
Is Death in Service Benefit Enough?
For many families, death in service alone is not sufficient. Here is why:
- It only lasts while you are employed – If you leave, are made redundant, or retire, the cover stops immediately with no option to continue.
- The payout may be too low – Two to four times your salary sounds substantial, but may not cover a £200,000+ mortgage plus years of living costs, childcare, and education.
- You cannot control the policy – Your employer can change or remove the benefit at any time.
- It does not cover illness – Death in service only pays out on death. It does not cover serious illness (that requires critical illness cover) or inability to work (that requires income protection).
Death in Service vs Personal Life Insurance
| Feature | Death in Service | Personal Life Insurance |
|---|---|---|
| Cost to you | Free | From £5/month |
| Portable? | No – ends when you leave | Yes – stays with you |
| Cover amount | 2–4x salary (employer decides) | You choose (any amount) |
| Medical required? | Usually not | Health questions required |
| In trust? | Usually yes | You need to set this up |
| Covers illness? | No | Optional CIC add-on |
Self-Employed? Consider a Relevant Life Policy
If you are self-employed or a company director, you do not have access to employer death in service benefit. However, you can set up a relevant life policy through your limited company to get similar tax benefits. The company pays the premiums as a business expense, and the payout is not subject to income tax, National Insurance, or inheritance tax.
Frequently Asked Questions
Death in service is an employer-provided life insurance benefit that pays a lump sum to your family if you die while employed by that company. The typical payout is between two and four times your annual salary, funded entirely by the employer.
If the scheme is written under a discretionary trust (most are), the payout is not subject to inheritance tax or income tax. However, if not in trust, it could form part of your estate and be subject to 40% IHT.
In most cases, yes. Death in service only covers you while employed, can be changed by your employer at any time, and may not provide enough cover for your family’s full needs. A personal policy stays with you regardless of job changes.
The cover ends immediately when your employment ends. There is no option to continue or convert the policy. You would need to arrange personal life insurance to replace the lost cover.
The most common multiple is three or four times your annual salary. Some employers offer two times, while generous schemes may offer six to eight times. Check your employee benefits handbook or ask HR.