Death in service and life insurance: What’s the difference?



Life insurance, death in service, what does it all mean? When mapping out our futures, very few of us will immediately think about what will happen when we’re gone. Most of us spend time planning how to cut back or save for our own future. But how many of us plan to safeguard the future of our loved ones and dependants in case we become too ill to work or are no longer here?

If you’ve already got death in service cover from your work, you might think you don’t need a life insurance policy. We’ll take you through the difference between the two and when death in service might not be enough.

Death in service

Your employer can offer you death in service cover as part of your employment package. It’s similar to life insurance but it does have its differences. If the worst did happen while you were working for the employer who offered the cover, they’ll pay out a lump sum to your loved ones. Like life insurance, this would give them money so they could keep up with bills and pay the mortgage.

The amount your loved ones would get is usually between two to four times as much as your salary. So if you were earning the average UK salary today of £27,500, the average lump sum pay-out to your family would be between £55,000 and £110,000.

Do I need life insurance?

Have a look at what you earn and what your outgoings are. Would death in service cover everything you usually pay out? That includes your outstanding debts, funeral costs and also the costs of your children to get through school or go to university. If you’ve still got 20 years left to pay off your mortgage, would your death in service payment cover this?

Since death in service comes as part of your employment package, you may ask why you need life insurance too. Life insurance enables you to choose where the money goes and whom it goes to. It pays out a one-off or monthly amount to your loved ones. It would give you extra cover in case you change employer.

What to remember

If you die, the loved ones who depend on your money to cover the mortgage are likely to struggle and unless they can find some extra money, they could lose their home.

If you take out a policy, you can choose whether your family get a one-off pay-out or monthly sum. You can also decide specifically what your family should use the pay-out for – for example, it can pay your rent or clear your mortgage. This is a ‘trust’ and can mean your family doesn’t pay taxes on the pay-out.

If you’re single and you become too ill to work, there’s still the mortgage and living costs to think about, so you could consider life insurance with critical illness as an addition.

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