Death-In-Service Benefit vs Life Insurance
What is a death-in-service benefit? Learn how it works, how it's calculated, and whether you need life insurance if you have a death-in-service benefit.
Key takeaways
- Death-in-service benefit is a life insurance payout provided by employers to their employees, offering financial support to beneficiaries if the employee dies while still employed, typically amounting to a multiple of their salary.
- The payout amount is usually between two to four times the employee's annual salary, and employers can set different levels of cover based on job role or age.
- Death-in-service payouts are typically held in trust, placing the money outside your estate (the total assets and money you leave behind). This often means payouts are free from income tax or inheritance tax, depending on your employer's scheme rules.
- Unlike personal life insurance, death-in-service benefits do not require premium payments from employees.
- Death-in-service benefits are only valid while the employee is on the payroll. Cover ends if the employee leaves the company.
Death-in-service benefit is a life insurance payout provided by employers for their employees. It’s often part of a wider employee benefits package that may include private health cover as well. Death-in-service is also known as group life insurance or group life assurance.
If you die while you're employed by your company, your loved ones will receive a lump sum payout. The amount is usually a multiple of your salary. And you can often choose who receives the money.
In this article we’ll talk about how death-in-service works, how it’s calculated and how it’s different to personal life insurance.
What does death-in-service mean?
Death-in-service is a payment made by your employer to your loved ones if you die when you’re still employed by them. It works like a life insurance payout, but you don't have to pay monthly premiums. Your employer covers the cost. Sometimes, your employer will require you to be part of the company pension scheme to get the benefit. You can check this with your HR team.
If you do have death-in-service benefit, you’ll be asked to choose who should receive the payment. These are your beneficiaries. They’re usually close relatives, like your spouse or children. They can choose what they do with the money, but it can help towards paying for your funeral expenses for example.
Your death doesn’t need to take place at work or be work-related. You just need to be on the payroll of the company providing the death-in-service benefit when you die.
There’s no legal obligation for employers to offer a death-in-service benefit. However, many companies do as a way of helping families financially if they lose a loved one’s income.
How is death-in-service calculated?
The amount your beneficiaries receive depends on how your employer has set up the plan. But it’s usual for employers to pay out up to four times your annual salary. So, if you get paid £25,000 a year and your employer pays four times your annual salary as a death-in-service payment, your loved ones will receive £100,000.
Employers can also choose to have different levels of payment depending on your job role or age. For example, they may provide a four times annual salary payout for senior managers, but only two times annual salary for junior employees. They can also choose whether overtime, bonuses and commission are taken into account in the calculation.
Is death-in-service taxable?
Death-in-service policies are usually held in trust. This means they’re not subject to tax, such as income tax or inheritance tax in the UK.
A trust is a legal arrangement that’s run by a group of trustees. The trustees are the policy's legal owners. This means the policy doesn’t belong to you, so it sits outside of your estate. As part of the trust, you can request that certain people, such as your family, receive the payout. Although the trustees can ultimately decide who receives the payment, they will usually follow your wishes.
How long does it take to pay out death-in-service?
Payment times vary by scheme, but once all paperwork is in order, claims can often be processed within two to four weeks – though delays can happen if further checks or documents are needed
Your loved ones will need to let your employer know that you have died. And they may have to provide a copy of the death certificate too. As long as you’ve told your employer who should receive the payment, then the insurance company can go ahead and pay it. The money will usually get paid directly to your beneficiaries, not your employer.
If there’s a delay in issuing a death certificate, such as a postmortem, this may postpone the payment.
Is death-in-service the same as life insurance?
Death-in-service benefit works very much like life insurance, but there are important differences.
| Life insurance | Death-in-service | |
|---|---|---|
| What it does | Pays out a lump sum if you die or are diagnosed with a terminal illness while the plan is in place. | Pays out a lump sum if you die while you’re employed. |
| Purpose | To provide financial security to loved ones when you die. |
To provide financial security to loved ones when you die.
|
| Payment amount | You can choose how much cover you need. Many people have life insurance to pay off a debt such as a mortgage. | The amount is determined by your employer. Usually, two to four times your annual salary. |
| Tax status | Will only be paid free from inheritance and income tax if put in a trust. | Usually paid tax-free as policies are put into trust. |
| Length of plan | You can choose how many years you want the plan in place for. Whole of life insurance will last for the rest of your life. | Only available to you whilst you’re on the payroll of your employer. If you leave your job, your cover will end. |
| Premiums | Usually paid monthly. Once bought, the price of the cover stays the same. | You don't need to pay premiums. Your employer covers the cost. |
| Who's insured | Both you and your partner can be insured either together or separately. | Only you can be insured as you're an employee of the company. |
Do I need life insurance if I have death-in-service?
This depends on your circumstances. A death-in-service payment is a set amount that doesn’t take into account your financial circumstances.
Ask yourself if it will pay off your mortgage, cover childcare expenses or family bills. If the payment would not cover your mortgage, childcare costs or household bills, you may want to consider whether additional protection is right for you.
A life insurance policy can be tailored to your personal needs. It can also include your partner, so they have cover too. And once set up, you don't lose it if you change jobs. With death-in-service, you lose the cover when you leave your job. You’ll only be insured again if your new employer offers the insurance.
Learn more: Is it worth having life insurance?
Who gets death-in-service benefit?
You can choose who receives the death-in-service payment when you die. You do this by completing a nomination form or letter of wishes. This tells the trustees of the policy who you want to receive the money.
Employees usually nominate their close family to receive the payout. But you could also nominate a friend or charity if the scheme rules let you do that. Payouts can sometimes be split between several people.
The money is actually paid to the trustees who will then decide who receives what. If you have not named your preferred beneficiaries, the trustees will decide who should receive the payment in line with the scheme rules. This may include considering your next of kin and anyone financially dependent on you.
Does death-in-service benefit form part of my estate?
No. Because the death-in-service policy is held in trust, it sits outside of your estate. As you’re not the policy owner, it won't be counted as part of your wealth.
The amount gets paid to the trustees of the trust who will pass it on to your beneficiaries. This can be done fairly quickly as the money won't need to go through probate either.
Can death-in-service be contested?
If you’ve completed a nomination form or a letter of wishes, then payment usually goes to the person you’ve chosen.
However, if that person has died, or they can’t be contacted, the trustee will need to decide who should receive the money. It's also possible that someone may come forward with a claim to some of the money. For example, someone who is financially reliant on the deceased employee.
In these circumstances, the trustees’ decision can be contested. However, if they’ve acted in a reasonable way and within the rules of the trust, then their decision is often final.
Vitality life insurance
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*VitalityLife Claims and Shared Value Report 2025
