What is Death in Service?
It is life cover which is paid out as a tax-free lump sum to your family / estate if you’re employed by the company (i.e. on the payroll) at the time of your death. This type of cover can be provided as part of a group plan, which is often connected to a retirement plan. However, it can also be offered as a separate plan, without any connection to a pension scheme.
How does it work?
With Death in Service there’s no annual or monthly premium to pay – you just need to be employed to benefit from it. The employer pays the premium and in most cases, no underwriting is required, meaning you do not need to provide medical history. The amount and way that it is paid out is set out in the plan rules and overseen by a group of people called the Trustees. The amount of money that your loved ones will receive, and how it will be paid, is usually based on your salary. For example, a typical lump sum benefit is four times the amount of your salary. Be mindful that tax is based on your personal circumstances and may change in the future.
Points to note:
It is worth remembering that if you leave the company where death in service is offered, you’ll no longer be covered.
You are unable to assign your death in service benefit to cover your mortgage, but your beneficiaries can decide to use the money towards repaying a mortgage. Depending on who receives the lump sum after your death they may have an inheritance tax liability, so it’s best they seek independent tax advice.
Most people who are not members of a death in service company plan can take out their own policy. The reason you might do this is because you can get tax relief (like your pension) on the premium cost of the life cover. So, if for example, the cost of your cover was €100 per month and you were on the higher rate of tax, you may receive up to €40 a month tax credit.
You can take your death in service benefit into account when you apply for life insurance, which can bring down the cost of cover because you will need less of it.
For Employers Setting Up A Policy:
The process for setting up a group policy is very straightforward. You simply provide the level of cover you wish to have and a breakdown of the employees requiring cover to include the following;
Date of birth / Gender (No names required) / Salary / Occupation and Role
The life company will then provide a quote based on the above criteria and specify the amount of cover and terms. The policy is renewed annually and you update the employee information at renewal stage (new employees can be added / removed during the year).
The Advantages of Death in Service:
It is an attractive benefit to be able to offer to current and future employees. For employees who perhaps struggle to get personal protection cover due to underlying health issues, this is a huge advantage as underwriting is not required.
The cost of providing this cover can be written off against corporation tax.
The underwriting requirements for group life assurance are much less stringent than for individual life assurance cover. A non-medical limit is set based on the size of the group and the levels of cover. Any member whose benefits are below this limit does not need to be medically underwritten, which means that no further medical assessment is required.
As cover is organised on a group basis, costs are significantly lower than equivalent individual life assurance cover.
Administration is much more straightforward than purchasing equivalent life assurance cover policies for each individual employee.
