Thinking about what will happen when you die is never pleasant or easy, but it is, nevertheless, important – especially when it comes to ensuring your family is left with a safety net that takes care of your financial commitments.
One safeguard that is designed to help your family financially after you die is death in service benefit. Offered by your employer, death in service benefit pays out a tax-free lump sum of money if you die while employed by said employer.
However, this does not mean that your death has to occur while you’re at work or undertaking a work-related activity. You simply need to be currently employed by the company through which your death in service benefit is provided.
Sometimes, death in service benefits are linked to company pension schemes and you may only be able to apply for death in service benefits if you are a member of your employer’s pension scheme too.
While you are often able to nominate who should benefit from your death in service benefit in the event of your death, some schemes see the payment made into a trust. It is then up to the trustees to decide where the money is allocated.
The amount your family will receive from a death in service benefit all depends on your employer’s particular package. That’s why it’s always essential to read the terms and conditions of any benefit thoroughly to make sure you fully understand what you and your family are entitled to.
Many Brits Are Confused
As already mentioned, you do not need to die while at work to benefit from death in service. So, for example, even if you died from cancer, as long as you were still employed by the same company the death in service benefit would pay out.
However, research by Direct Line Life Insurance shows that a significant proportion of Brits are confused about death in service benefits.
Indeed, according to the research, 43% of British people believe a death in service pay-out would only be applicable if they were to die in a workplace-related incident. Furthermore, 17% of Brits don’t know what death in service is and 11% don’t know if they would be covered by their employer.
A further 42% have no idea how much would be paid out to their loved ones if they were to pass away.
The research found that the average death in service benefit offers between one and two years’ salary for employees – estimated at between £27,600 and £55,200. However, 5% pay less than one year’s wages.
Almost a fifth (18%) of death in service benefits pay out three to four times an individual’s salary, while 5% pay more than five times. When it comes to the size of the benefit, a lot depends on an individual’s role and seniority within an organisation.
Jane Morgan, business manager at Direct Line Life Insurance, said even though death in service is an invaluable benefit for many, the amount paid out is unlikely to be enough to cover a family’s outstanding mortgage balance.
“This could leave families in a financially vulnerable position, especially having lost an income, adding extra pressure at an already emotional and difficult time,” she said.
The amount paid out by death in service benefits varies. People should be fully aware of what any benefit package they are covered by offers to avoid any misunderstandings should the worst happen.
Stephen joined Premier Choice in 2006 as a Group Risk consultant and became Head of Group Risk in June 2013. In December 2017, Stephen also took over responsibility for the Protection division within Premier Choice and works to grow this in the same way he has the Group Risk division. Protection is a specialist area and fits well with his experience and expertise in the group risk market.