What’s the difference between Death In Service and Life Insurance?

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Life insurance pays out a lump sum if you die, helping your dependents cope financially. Death in service is similar.

Yet some people may be unsure if they have death in service, while others may not know if it would be enough for their family to live on. Meanwhile, those who have death in service may not realise they could benefit from taking out life insurance too.

What does death in service mean?

Death in service can be offered by companies as part of an employee’s benefits package. However, companies aren’t legally required to offer death in service benefit, so not all employers will give you cover. It’s paid out as a tax-free lump sum if you’re employed by said company at the time of your death.

Death in service cover doesn’t require you to die while at work or in a work-related accident – you just need to be on the payroll.

Death in service does have similarities to life insurance, but there are many differences. Even if you have death in service, you may want to boost your cover with life insurance.

What are the differences between life insurance and death in service pay-outs?

Typically, death in service benefit, if you have it, is two to four times your annual salary*.

You might think the benefit is a substantial sum of money, but you want to be sure the financial safety net for your family is as wide as it can be. Plus, if you were to die, the costs involved soon add up. The SunLife Cost of Dying Report 2021 states the average cost of a basic funeral is higher than ever before. At £4,184, it’s up 1.7% since 2019 – and up 128% since 2004.**

Meanwhile, the payout of a life insurance policy depends on the cover you’ve chosen to take out – meaning you have the freedom to decide how much your beneficiaries get, not your employer.

Depending on how much your beneficiaries may need if you were no longer around, you may wish to supplement your death in service benefit with a life insurance policy to cover not only funeral costs, but the remainder of your mortgage.

It’s also worth remembering that if you leave the company where death in service is offered, you’ll no longer be covered.

Who receives the death in service or life insurance payout?

Death in service

Usually, death in service schemes are set up under a discretionary trust, meaning trustees – i.e. your company – will have the final say as to who receives the money, though you can nominate a beneficiary. It’s a good idea to write an expression of wishes or a nomination of benefits letter letting your employer know who you’d like to receive the money if you pass away.

It’s worth bearing in mind that you’re 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.

Life insurance

With life insurance you have more options on who receives the payout. For example, you could place it in trust and choose your own beneficiaries, you could assign it to your mortgage, or you could simply leave it to form part of your estate.

Looking for advice?

Speak to our expert protection specialists today about life insurance. Whether you’re looking to set up cover or review your current cover, we can help. Call 01224 316200 or fill in our online enquiry form.

Sources:

* www.moneysupermarket.com/life-insurance/death-in-service/

** https://www.sunlife.co.uk/funeral-costs/

Lifetime Finance Group Limited trading as Aberdeen Mortgage Company is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority for mortgages, protection insurance and general insurance products.

COVID-19 Life Insurance Myths – Dispelled

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While no amount of money can ever replace a life, insurers have and continue to do everything they possibly can to help families cope financially through these distressing and worrying times.

There are many false rumours and claims circulating regarding life insurance claims and COVID-19. In our article we hope to dispel these myths. If you have any further questions regarding this, tweet us @aberdeenmortgco.

I’ve had a COVID-19 vaccine, is my life insurance still valid?

There are claims being made that having the COVID-19 vaccine will impact your Life Insurance cover. As reported by the Association of British Insurers (ABI), this is false. Receiving a vaccination against Covid-19 will not impact your life insurance cover.

What do the Life Insurance providers say?

Aviva

If you have a life insurance policy with Aviva and they pass away due to coronavirus, Aviva will pay out, if the claim meets the terms and conditions of the policy.

Legal & General

Subject to all the normal criteria for a claim being met, Legal and General have no exclusions around taking medically approved vaccinations. You will continue to be covered if any reaction or complications arise as a result of taking the COVID-19 vaccine.

Equally you will continue to be covered if you have (had) COVID-19 and had previously refused a COVID-19 vaccine.

LV

COVID-19 vaccinations will not have a negative impact on your cover.

LV are aware that there are claims being made that having the COVID-19 vaccine will adversely impact life insurance and other insurance policies. This is not true. If you have had a COVID-19 vaccine as part of the UK vaccination programme, there will be no negative impact when applying for or claiming under any of our personal or business protection policies.

Source: LV, March 2021, lvadviser.com/coronavirus/protection

Royal London

If you’re worried about whether you’re covered for coronavirus under your life policy, Royal London would like to reassure you that claiming on your Life Insurance for death due to coronavirus is valid, as long as the terms and conditions agreed under your plan are met.

Royal London life policies don’t contain exclusions in relation to pandemics or the contraction of a virus in a foreign country.

Vitality

Should you pass away as a result of Coronavirus, or complications from the virus, a claim will be paid, as per the terms of your life insurance plan.

Source: Vitality Coronavirus FAQs, March 2021, vitality.co.uk/coronavirus-faqs/

Has there been life insurance pay-outs for COVID-19 deaths?

Association of British Insurers (ABI) figures show equivalent of over £550,000 per day was paid in Covid-19 death claims in 2020.

According to the figures, there were 11,198 claims received under individual and group life insurance policies. Of these, 10,205 were individual policies (whole life, term insurance and critical illness claims) with 993 on group life insurance schemes.

A total of £202 million was paid out throughout the year on 96% of individual and 99% of group claims.

LV have published their COVID-19 related claims. As of 31 August, the total value of COVID-19 related claims exceeded £6 million.

Craig Paterson, chief underwriter at Royal London, said: “Despite 2020 being an unpredictable year, we continued to pay claims promptly and support our customers. The pandemic has shown the importance of having protection in place and we have paid £13.1 million in Covid-19 related claims.”

Looking for advice on your life insurance?

For more information on arranging life insurance or reviewing your current policy, speak to our expert protection specialists today. Call 01224 316200 or fill in our online enquiry form.
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Lifetime Finance Group trading as Aberdeen Mortgage Company is an appointed representative of PRIMIS Mortgage Network, a trading name of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority.

95% Mortgages Return for First Time Buyers & Homemovers

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The COVID-19 pandemic has led to a reduction in the availability of high loan-to-value (LTV) mortgage products, particularly for prospective homebuyers with only a 5% deposit. This has left many hard-working households unable to get onto the housing ladder. In today’s Budget the government has therefore announced a mortgage guarantee scheme to support a new generation in realising the dream of home ownership.

It will give buyers – both first-time and existing – the option to put down a 5 per cent deposit on a home with a value of up to £600,000.

Are you eligible?

The scheme is designed to help creditworthy households struggling to save for the higher mortgage deposits required by lenders in the current environment. For this reason, a mortgage eligible for a guarantee under the scheme will need to:

  • be a residential mortgage (not second homes) and not buy-to-let
  • be taken out by an individual or individuals rather than an incorporated company
  • be on a property in the UK with purchase value of £600,000 or less
  • have a loan-to-value of between 91 per cent and 95 per cent
  • be originated between the dates specified by the scheme
  • be a repayment mortgage and not interest-only and
  • meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test

Source:  The mortgage guarantee scheme outline, gov.uk, March 2021

The scheme is intended as a temporary measure. It will be open for new mortgage applications from April 2021 to December 2022.

Looking for advice?

For more information and advice on which mortgage lenders are taking part in the scheme, speak to our award-winning expert mortgage advisers at Aberdeen Mortgage Company. Call 01224 316200 or fill in our online enquiry form.

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

This firm charges a fee of up to £595 for mortgage advice. The fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.

Lifetime Finance Group Limited trading as Aberdeen Mortgage Company is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority