Death in Service Benefit
Death in Service (DIS) is a form of group protection that an employer can provide its employees with as part of its overall benefit of employment package.
DIS typically pays outs a tax-free lump sum equivalent to a multiple of the employee’s yearly salary if the employee dies whilst employed by the company. Death in service cover does not require the employee to die at work or from a work-related accident, they just need to be on the payroll at the point of death. This also means that if an employee were to leave the company or lose their job, they would no longer be covered.
Companies aren’t legally required to offer DIS benefit. According to Canada Life, only 4 per cent of employers currently offer DIS benefit. Yet in 2018, 42 per cent of Britons went without life insurance because it was considered too expensive. This is why we believe that there is an opportunity for employers to introduce this scheme into their workplace. Below, I have detailed some of the main benefits that this type of cover can have on both the workforce and on the company.
Benefits for staff.
DIS can be a particularly useful and valuable benefit to members of staff who would otherwise be unable to obtain conventional life insurance policies. This is because unlike conventional private cover, DIS does not require any medical underwriting. This means that regardless of age and medical history, the workforce is provided with cover that they may otherwise be unable to obtain. Furthermore, the premiums are paid by the employer and are not considered as a P11D benefit in kind. All of the aforementioned contributes to the wellbeing of the workforce.
In the event of a death, the proceeds of a claim are paid into a trust set up by the employer. The employer is then responsible for distributing the funds in line with the deceased’s wishes. This typically results in funds reaching the beneficiaries quickly which could be used to help cover unforeseen costs such as those associated with funerals or for other liabilities. Moreover, as the policy is paid into trust, the proceeds of the claim are exempt from inheritance tax which means that they will not be included the deceased’s estate for inheritance tax purposes.
Benefits for employers.
For many businesses thinking about enhancing its employee benefits package, a group life insurance scheme is the perfect complement to a workplace pension.
Offering group life insurance lets employees know their loved ones are taken care of financially if they died without having to pay a penny for the cover. Having an employer provide them with a generous benefits package may in theory, take the load off employees’ shoulders, increase staff retention rates and drive down the costs of recruitment.
We’ve covered cost briefly but it’s worth noting that DIS premiums are typically half the price of those associated with private life cover. These premiums are also classed as a business expense so the company benefits from corporation relief. DIS premiums nor the benefits are subject to tax making this type of protection one of the most tax-efficient insurance options available.
It is important to note that sometimes, DIS is linked to the company’s pension scheme, which means you can only receive the benefit if you are part of the company pension scheme. Pension planning is an equally important facet of the overall financial picture. It is worth ensuring that you fully understand the benefits of your workplace scheme and what is on offer.
DIS benefit should not be viewed as being an alternative to life insurance. It should be considered in conjunction with and alongside wider protection planning to ensure that the individual’s circumstances are adequately covered.
This article is for information purposes only – should not be perceived as financial advice