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Death in service benefit can be an attractive workplace perk, providing a type of life insurance that could give your loved ones a lump sum when you die without costing you a penny. We explain how death in service differs from traditional life insurance and whether you need both.
Here’s a quick summary of the key points of our guide to death in service benefit.
Also known as group life insurance or death in service insurance or assurance, death in service benefit is a free perk a company may offer some or all of its employees.
With this type of group life insurance, companies aim to provide some financial protection to your loved ones through a lump sum payment if you pass away in their employment.
While there is every reason to take up this benefit, it makes sense to weigh up whether you should also pay for personal life insurance to cover any shortfall in the money it might provide, and to understand the differences between this workplace perk and traditional life insurance.
You can learn more about life cover in our article on popular types of life insurance.
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Some employers offer group life insurance to provide a lump sum payment to an employee’s dependants should the employee pass away while on the company’s payroll. The benefit is paid whether an employee dies at work or elsewhere and ends when they leave their job or the company ceases trading.
Your employer might provide this as part of a benefits package, which might also include private healthcare or a health cash plan, or it can be linked to your company’s pension scheme. In this guide we focus more on how it works as standalone insurance as part of employee benefits.
The lump sum from a death in service policy, which is usually paid tax-free, will help your beneficiaries (the individuals you nominate to receive this money in the event of your death) cope financially if they were to lose the steady income you earned during your employment.
Understanding how this workplace benefit operates and the lump sum your beneficiaries might receive will help you decide whether it offers adequate financial protection or whether to consider topping it up by taking out your own life insurance policy or joint life insurance as a couple.
Death in service benefit is usually paid to close family, such as a spouse, civil partner or your children. But depending on your circumstances and scheme’s rules, you could nominate other family members or friends, and more than one person. Either way, you should fill out the scheme’s ‘expression of wish’ or nomination form, naming your beneficiaries and stipulating what percentage of the lump sum each will receive.
If you don’t nominate at least one beneficiary, the money might not be distributed in the way you would have liked.
Always review your named beneficiaries after significant life events, such as marriage, divorce, births and deaths. For example, you may want to fill out a new form to add children or remove an ex-partner.
Employers generally manage a death in benefit scheme within a discretionary trust as it’s more tax-efficient. While the company’s trustees who manage the scheme will usually accept your wishes, it is ultimately up to them to decide who would benefit from a death in service payout.
How much your beneficiaries might receive is up to your employer and is based on your earnings. However, the exact benefit amount can vary depending on how the employer sets up the policy and other factors. The key elements that can influence the final lump sum include:
Let’s give you an example of a typical death in service benefit payout in real terms. According to Office for National Statistics figures, the total average weekly earnings in Great Britain were estimated at £716 in February 2025. This puts the average gross annual salary at £37,232. The table below shows the average death in service payment based on different salary multiples.
Employees working in London or in senior roles may receive significantly more than these examples due to their higher salaries.
It shouldn’t take long for your beneficiaries to receive the lump sum because death in service benefit is generally held in a trust; it doesn’t need to go through probate.
Beneficiaries can typically expect to receive their funds in 14 to 30 days. However, a missing death certificate, an investigation into the cause of death and queries about beneficiaries can sometimes cause delays.
As death in service insurance is generally held within a discretionary trust, it doesn’t form part of your estate. This means that there will be no income tax, capital gains tax or inheritance tax (IHT) to pay.
However, if there are any delays, lump sums paid by the trustees from two years after the employee’s death may be subject to tax.
It’s worth noting that the government announced changes to the rules around some death benefits and inheritance tax in its Autumn Statement 2024. Death benefits, which form part of a defined benefit pension, will be included in a person’s estate and will be subject to IHT from 6 April 2027.
There has been a government consultation about these proposed changes, with many questions from pension providers still unanswered. At the time of writing, it is unclear whether the new legislation will affect death in service benefits that are part of a benefits package.
Contact your HR department if you’re unsure whether you have death in service benefit as a standalone policy or linked to your company’s pension scheme, which could affect the tax status of the money your beneficiaries would inherit.
A death in service policy can give you peace of mind, particularly if you are the main breadwinner in your household, and has the following benefits:
Death in service benefit pros
Even though death in service can be a valuable benefit, there are a few negatives to consider.
Death in service benefit cons
While death in service benefit is a nice perk, a lump sum of even four or five times your annual salary may not be enough to cover future living costs your loved ones might face – such as extra childcare as a single parent. The average cost of a nursery place for a child under two is £238.95 for 35 hours a week in England, according to the Childcare survey 2025 by the charity Coram.
One way to mitigate these costs is to take out a life insurance policy to top up any lump sum your family might receive. And so long as you keep up with monthly payments, it will offer protection even if you change jobs.
Bear in mind that the younger (and healthier) you are when you start paying, the lower your monthly premiums are likely to be.
At first glance, death in service and life insurance may seem similar in that they both offer some financial protection to your beneficiaries, but there are key differences too.
With death in service cover, underwriters don’t generally carry out a health assessment, which means pre-existing medical conditions or lifestyle factors such as whether you are a smoker aren’t usually considered. The only requirement is that you are an employee of the company providing the benefit.
This differs from personal life insurance, where, with the exception of over-50s cover, underwriters will assess your health and lifestyle before agreeing to offer you cover.
The death in service payout is calculated as a multiple of your salary, so unless you are a high earner your dependants may find that it’s not enough to cover your outstanding mortgage balance. The average mortgage in Great Britain was £278,036 in January 2025, according to the UK House Price Index, which is significantly more than the payout on an average salary.
What is more, your beneficiaries are not obliged to use their lump sum for this.
With a life insurance policy, you can decide how much cover you’ll need, and with certain types of life insurance you can stipulate that mortgage repayments will be covered.
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While group insurance is only offered to employees, personal life insurance is open to self-employed workers, economically inactive people who can afford the premiums and couples who would benefit from a joint life insurance policy.
One of the benefits of taking out life insurance is that lump sums can be more generous than death in service payments. This is because you can calculate your income and outgoings, and then ensure that your premiums are high enough to fully protect your family’s finances.
With death in service, the level of cover is fixed depending on a multiple of your annual income.
As with death in service benefit, the payout from personal life insurance is not subject to tax – but it does depend on your life insurance being held in a trust.
Without the tax-free status a trust provides, the value of your estate including the life insurance lump sum could go above the IHT threshold of £325,000 and be taxed at 40%. So, if your beneficiaries claim a lump sum of £150,000, they may only receive £90,000 after IHT.
As mentioned previously, from 6 April 2027 the government is bringing certain death benefits in pensions within the scope of IHT. Standalone death in service benefits have not been included in current proposals so far.
If your death in service benefit is packaged with your pension plan, contact your pension administrator if you are unsure how the new rules might affect you.
While you can discuss what type of funeral you would like, what your beneficiaries decide to do with the payout from death in service cover will be at their discretion, and their claim may not be settled in time to pay for the funeral.
In contrast, personal life insurance providers can be more flexible about helping families at this difficult time – for example, some will advance enough money to pay for the funeral.
Alternatively, with over-50s life insurance you can opt in to a funeral plan to be paid directly to the funeral provider soon after you die. But there are some drawbacks: it may not cover the full cost of a funeral, and your family will have to pay any shortfall. Also, you could be out of pocket if you live to a ripe old age because you could spend more on premiums than your beneficiaries will receive.
Related guide: Best life insurance companies in the UK
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Hannah has a strong track record in personal finance journalism as a writer and copy editor, as well as championing consumer rights.
No, it is not treated as a benefit in kind for tax purposes.
This type of insurance typically runs from 18 up to state pension age, though some group life policies cover age 16 – if parents take it out on their behalf – up to 75.
No, as it is paid directly by a discretionary trust to your nominated beneficiaries, it does not form part of your estate.
Yes, it is possible to nominate a registered charity to receive all or part of the lump sum, depending on the rules of your employer’s scheme.
