Death in service benefit and life insurance - Do you need both?
Many employers offer what is known as a Death in Service Benefit' as part of their general employment benefit package, which pays out if you die while you are still working for the company.
However, the nature of Death in Service cover means that the payout your beneficiaries would receive is often much smaller than would be the case from a Life Insurance policy – so it is often worth your while to supplement your death in service benefit with your own separate life insurance cover.
What is Death in Service Benefit?
Employers who offer a Death in Service Benefit will pay out a sum in the event of your death, as long as you are still employed by them when you die. Importantly, your death does not have to occur at the workplace, during working hours or be the result of any work-based activity in order to qualify for the pay-out. As long as you are still on the company’s payroll at the time of your death, your beneficiaries will be eligible for the pay-out.
In some cases, Death in Service Benefits are linked to the company pension, so you will only be eligible for the associated pay-out if you are signed up to the pension scheme.
How much does a Death in Service Benefit payout?
Although it may differ between companies, the pay-out associated with a Death in Service Benefit is typically between two and four times your annual salary at the time of your death.
So, if you are earning £50,000 per year, then your beneficiaries would likely receive between £100,000 and £200,000 from the company. As it varies between employers, you should check your Death in Service scheme to make sure you know exactly how much your dependents will receive.
Do I still need to get life insurance if I already have a Death in Service Benefit?
Everyone’s financial situation is different, but the general guideline is that you should ideally have Life Insurance cover that pays out around 10 times your annual salary. This means that death in service benefits are usually not sufficient on their own to help your dependants cope financially in the event of your death.
Therefore, depending on your individual circumstances, you may want to consider supplementing your Death in Service Benefit with your own life insurance policy so that your family gets the financial assistance they need. The good thing about having a Death in Service benefit is that the amount of cover you need to buy yourself can be much lower, which means your premiums will also be lower.
So, if your salary is £50,000 and your death in service benefit is three times that (£150,000) then you could take out a Life Insurance policy up to the value of £350,000 so that your total cover comes up to 10 times your annual salary.