Is Death in Service the Same as Life Insurance? No, it is not. Find out why by checking out our death in service vs life insurance comparison.

Death in Service vs Life Insurance

While both death in service and life insurance cover pay out lump sums in the event of a person’s death, there are some significant differences between them. These differences are best shown by looking closer at how each of these types of cover works.

Death in Service

Provided by employers (usually as part of benefits packages), death in service pays out a lump sum (tax free) if an eligible employee dies while in the company’s employment.

Sometimes linked to company pension schemes, death in service pay-outs usually range between two and four times an employee’s annual salary (i.e. if you earn £20,000 per year, the benefit would pay out between £40,000 and £80,000), although some employers are less – or more – generous.

In most cases, pay-outs are also made into a trust. If this is the case, the final decision as to who receives the money is made by trustees, although it is often possible for eligible employees to leave details with regards to whom they would like to receive the lump sum.

While death in service benefits can help with the expenses of an employee’s death, they:

  • Cannot be linked directly to a mortgage,
  • Cease when the employee leaves the company, and
  • May not be enough to cover the financial needs of the employee’s family

Life Insurance

Taken out and paid for by you, a life insurance policy will pay out a lump sum (generally income-tax free) to the beneficiary/beneficiaries of your choice in the event of your death.

Cover levels (the amount to be paid out) can be set to meet your family’s specific financial needs, policies can be linked directly to mortgages, and the higher the cover level is, the higher monthly premiums will be.

Covering you throughout the policy’s term regardless of your employment status, life insurance is therefore the most effective way to protect your family’s financial future in the event of your death.

So, is Death in Service the Same as Life Insurance?

Covering you only while you are in a specific company’s employment, death in service may not be enough to cover your family’s financial needs if you die. It is therefore not the same as life insurance, which will cover you throughout your chosen policy’s term and can be set to adequately cater for your family’s future financial security.

Spectrum FA

We have the experience and know-how to successfully guide you through the complex process of determining the right kind of life insurance policy and cover level while keeping premiums competitive and affordable. Call us on 01279 315 013 now to learn more.