What Does Death in Service Mean?
Often offered by employers as part of employee benefits packages, death in service cover pays out if an insured employee dies while in a company’s employment. But exactly what does death in service mean? Read on to find out…
About Death in Service Cover
Provided by employers, death in service cover – or benefit – benefit schemes pay out a lump sum when eligible employees pass away while on the providing company’s pay-roll. Usually consisting of approximately 2 to 4 times an eligible employee’s annual salary (i.e. if you earn £35,000/year, your family could receive between £70,000 and 140,000), this tax-free lump sum is designed to help dependents cope financially after the employee’s death.
Some employers are, however, more (or less) generous than others, so to find out precisely what is offered (if anything), employees should contact their company’s human resources departments.
In some cases, death in service benefits are paid into discretionary trusts, which means while employees’ wishes will be considered (assuming they have written nomination of benefits or expression of wishes letters), trustees will ultimately decide who receives the cash.
Finally, death in service benefits cannot be assigned directly to mortgages, although families could, of course, use the cash to pay off a mortgage once they have received it.
So, Exactly What Does Death in Service Mean?
Many employees mistakenly take death in service to mean that their families will only receive this benefit if they pass away while at work or actively engaged in work-related activities. This is, however, not the case.
What it does mean is that an employee’s family will receive this benefit if this employee passes away at any time and wherever he/she happens to be for as long as he/she remains on the company’s payroll.
In other words, the benefit will pay out regardless of whether the employee happens to be at work, on holiday or at home in bed at the time of his/her death – for as long as he/she is employed by the company offering the scheme (i.e. if he/she was to leave the company’s employment, they would no longer be eligible to receive this benefit).
Additional Life Insurance
While some employers offer flexible benefit schemes making it possible to reduce other benefits to increase the value of death in service benefits, the lump sum paid out is often not enough to fully cover dependents’ financial requirements.
Considering the expenses involved in someone dying – funeral costs alone, for example, can really add up, with an average funeral now costing between £3,500 and £4,000 – this sum is all too easily swallowed up before a family’s financial needs are met.
Taking out additional life insurance to ensure your family’s financial future is adequately protected is therefore essential.