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

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.



** 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.