Is death in service the same as life insurance?

Death in service insurance and life insurance are similar in that both are designed to payout a lump sum in the event of death. But is death in service the same as life insurance?

We'll explain some of the similarities and differences in this guide.

What is death in service insurance?

Death in service insurance is an employee benefit offered by some employers, which is designed to pay out a lump sum if you were to die while employed by the company. The size of the payout is chosen by your employer and is either a multiple of your annual salary or a fixed amount.

You don't have to die at work or in a work-related accident. The cost of the premiums is paid by your employer, and the payout is often tax-free.

Am I covered by death in service?

There's no legal requirement for your employer to offer death in service, although there are many benefits to both employer and employee. To find out whether you have a death in service insurance policy, contact your employer or human resources department.

Who gets the money from death in service cover?

The money paid out by death in service insurance is put into a trust, and the beneficiary will then get the death in service payout from this trust.

This means the money may not always go to the person you want. The trustees will have the final say on where the lump sum goes, but your wishes will be taken into account.

It's therefore a good idea to write an expression of wishes or a nomination of benefits letter detailing who you'd like to receive the money.

What is life insurance?

Life insurance, sometimes also known as life cover or life assurance, is designed to support your loved ones financially if you pass away, offering peace of mind to those you care about most. There are different types of life insurance intended to pay out a cash sum to your loved ones if you die while covered by the policy.

You can also purchase critical illness cover, independent from, or integrated into your life insurance policy, which will pay out if you are diagnosed with an illness covered by the policy.

Unlike with death in service insurance, you choose the level of cover and the policy term when you take out the policy as you pay the policy premium.

Life insurance vs death in service

While there are similarities to life insurance and death in service, they are not the same thing.

We've summarised some key differences between the two:

Death in service insurance Life Insurance
An employee benefit paid for by your employer. A personal policy normally paid for by yourself.
Pays out if you die while employed by the company. Pays out if you die during the policy term, which is chosen by you.
If you leave the company, you'll no longer be covered. Cover continues until the end of your policy term.
The amount of cover is chosen by your employer and is usually a multiple of your salary or fixed amount. You can choose the level of cover for yourself and can tailor it to your needs.
Schemes are usually set up under a discretionary trust, meaning you do not know who the trustees will payout to. You can decide who should receive the life insurance payout using a trust or will.
The payout is normally tax-free (if a registered scheme subject to the Lifetime Allowance). The payout may be subject to inheritance tax, unless it's written into a trust.

Do I need life insurance if I have death in service cover?

While having a death in service policy is a great perk, you may still need a separate life insurance policy, depending on your circumstances.

Check the level of cover you have under your death in service policy and think about whether the payout would be enough to cover your outstanding debts.

Would your loved ones struggle to cope financially with the death in service payout alone? If so, you may want to take out some additional life cover.

Let's look at the following example:

  • You earn £30,000 per year.
  • Your death in service policy will pay out 4x your salary (£120,000).
  • You have an outstanding mortgage balance of £200,000.

In this instance, the death in service payout would not be enough to clear your outstanding mortgage balance, leaving your loved ones to manage this financial commitment without your income to support them.

So, you may want to consider buying some additional life insurance. You can take your death in service insurance into account when you apply for your policy, which can bring down the cost of cover as you should need less of it.

Make sure to calculate the amount of cover you need, so you're not paying for unnecessary cover.

Remember, if you stop working for your current employer, you won't be covered under their policy anymore. According to research by LV= (2017), UK workers will change employer on average every five years, so having life insurance alongside your death in service policy could be a wise move.

Compare life insurance quotes

If you think life insurance is right for you, you can compare quotes from leading UK providers with Compare Cover. Or if you'd like some more information on life insurance, check out our useful life insurance guides.


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