Death In Service Vs. Personal Life Cover: Which One Is Right For You?

In Business, Employee Benefits, Insurance by Paul Howell

We often get asked by clients what the difference is between death in service (also known as group life cover) and personal life insurance. As such, here’s what you need to know about the difference between the two:

What is death in service?

Death in service is an employee benefit sometimes provided by employers that is designed to pay a tax-free lump sum (usually a multiple of the employee’s salary) to a worker’s family in the event of their death.

While it varies, death in service payouts are usually between two and four times an individual’s annual salary. So, for example, if a person earns £30,000 a year, their family can expect a tax-free sum of between £60,000 and £120,000 in the event of their death.

It is important to note that the death in service term shouldn’t be taken literally. That’s because it isn’t dependent on the employee dying in their place of work, rather they just need to be employed by the company at the time of their death, i.e. it will pay out regardless of where or when they die providing they are still in employment.

What is personal life cover?

Personal life cover – known to most people as life insurance – provides financial protection (in the form of a lump sum payout or regular payments) to a person’s family in the event of their death. It is not linked to the person’s job, so will continue to provide cover even if the individual’s employment ceases.

[Related reading: Choosing The Right Life Insurance Cover]

Which one is right for you?

Many people think that because they have death in service cover they do not need personal life insurance as well. However, it’s not always that straightforward.

Here are some of the downfalls of death in service:

  • It ends when you switch jobs
  • The size of the payout may not be enough to cover your family’s needs (consider how big your mortgage is, for example)
  • You may not qualify if you are not a member of your company pension scheme
  • You might not have complete control over who receives the payout

For these reasons, many individuals choose to take out personal life insurance in addition to death in service cover. It’s a sensible thing to do if you know that your death in service won’t provide enough of a safety net and/or you think you are likely to move jobs in the near future.

It is important to understand exactly how much your family will receive from your death in service benefit and make a decision accordingly. It might be the case that you have death in service and a relatively small personal life insurance policy to make up any shortfall.

Here at Premier Choice Group, we have established excellent relationships with all the major insurers to help ensure you get the very best cover possible for your individual needs.

Contact us today and we’ll help you choose the right option for your personal situation.

I joined Premier Choice Group as an SME/Corporate Consultant in 2017 and look after the Healthcare & Protection needs of a nationwide portfolio. I began my career in Healthcare and Protection in 1985 with BUPA, before moving on to  Royal & Sun Alliance. In 2002, I became an Intermediary and worked with Private Clients, SME’s and Corporate clients on a local, national and international basis.