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The difference between death in service cover and life insurance

Death in service is a form of employee benefit that functions very like life insurance: a cash sum is paid out to your relatives in the event of your death. However, unlike with life insurance, this payout is linked to your salary and is completely tax-free. Employee benefit is usually linked to a company’s pension scheme, so it is common that you have to be a member of this in order to qualify.

Death in service cover typically only ensures you while you are still working at the company providing it, and not all employers offer this benefit to their employees. If you want to find out if you can get it, you’ll need to contact your employer’s HR department.

Death in service vs life insurance: what is the difference?

It works similarly to a life insurance policy, but there are a few differences that it’s good to be aware of before considering whether it offers you a satisfactory level of cover. A death in service policy will typically feature the following:

  • A tax-free sum paid out upon death.
  • A payout calculated as a multiple of your salary (usually between 2 and 5 times the amount you earn in a year).
  • Payouts regardless of where death occurs. You don’t need to die while physically at work to be covered.
  • Cover that ends when you leave your employer.

Can you take out life insurance in addition to death in service?

Yes, and this can often be a good idea. Depending on your annual salary and the scheme offered by your employer, the tax-free payout from your death in service cover may not be enough to leave your family in a secure financial situation if the worst were to happen. If this is the case, then you might want to consider taking out a life insurance policy on top of the death in service benefit offered by your employer.

We’ve run through all the things you need to think about when considering whether to take out a life insurance policy in addition to your job’s cover.

Death in service vs life insurance: when do you need both?

There are many reasons why you might want to take out a life insurance policy on top of your employement cover, and they’re more varied than just making sure your family are left with a large enough payout to be secure. There are certain purposes to which this cover cannot be put (such as linking it to a mortgage), and you need to take your long-term career plans into account. You might want to consider an additional life insurance policy if:

  • You have a mortgage that you want to cover through insurance. Policies from your job can’t be used for this reason, and so it’s best to look at decreasing term life insurance policies.
  • The level of cover in the your policy isn’t enough. Death in service policies are linked to your salary, usually ranging from between 2 to 5 times the amount you earn in a year. If you want to be covered for more money in the event of your death, then you want to be thinking about a life insurance policy.
  • If you don’t plan on sticking with your employer in the long term. As the cover usually ends if you leave your current company, taking out life insurance is a good idea if you can see yourself moving jobs in the future.

In any of these cases, it definitely makes sense to consider additional life cover rather than just relying on your death in service plan.

Death in service vs life insurance: when is one enough?

Getting the right level of insurance depends on your personal situation, and it’s more than possible that the coverage offered by your employer’s policy benefit is enough for you. There’s no need to be taking out unnecessary superfluous policies, so you may want to consider sticking with just a death in service policy if:

  • You have few or no major financial responsibilities. If you don’t have a family who rely on your income, or a large debt such as a mortgage that needs paying off, then it’s likely that the cover offered within your scheme gives you enough cover already.
  • You plan on sticking with your employer for the foreseeable future. If you’re settled in your job and aren’t planning on going anywhere, then you can be secure knowing your cover will be there for a long time. Also, as the payout is tied to your salary, the amount of cover you have will likely increase as your career progresses.
  • If you feel that the cover from your employer gives you all the protection that you need. It’s always important to reiterate that the point of insurance cover is to give you and your loved ones the financial security you need for peace of mind. If your death in service policy already does this, it’s likely enough.

Overall it comes down to your current situation as to whether this type of policy offers you sufficient cover. If you feel that it does, then great! But if you feel like you might need some more cover, then it’s a good idea to look at our list of top 10 life insurance companies.

Death in service vs life insurance: conclusions

It is a great employer benefit, and if you are unsure whether your job offers such a scheme it is definitely worth contacting HR. The idea of your loved ones receiving a tax-free cash sum if the worst were to happen is comforting, and as long as you stick with the same employer then you will continue to be covered.

If you are eligible for it, then there isn’t really a reason why you wouldn’t want to take advantage of it. You only need to consider whether it offers you enough cover, and whether you are going to stay at your job for the long term in order to keep the insurance in place. If you are unsure about either of these, then it would be a good idea to look at taking out an additional life insurance policy to give you peace of mind.

If you are considering taking out life insurance on top of your company’s death in service benefit, then our reviews will explain all your options and help you find the level of cover you need at the best possible price.