What is Death in Service?
Some employers provide a benefit called ‘Death in Service’ - also known as ‘Group Life Insurance’ or ‘Employee Life Insurance’. If you’re lucky enough to have this benefit, then fantastic, you already have some financial protection in place for your loved ones. But here’s the thing; employer-provided life insurance can have its drawbacks. Sure, it’s an easy option that won’t cost you a penny, but is it really enough?
How does Death in Service work?
In many cases, you can nominate a beneficiary or beneficiaries and a lump sum of 2-4 times your yearly salary is paid to your beneficiary upon your death (this would vary by employer). But it’s often the case that the Death in Service benefit may not be given to your family directly. Instead, it’s sometimes placed into what is known as a discretionary trust. Your beneficiaries will then receive the Death in Service benefit from the trust. So the trustees (usually your employer) will decide who the death benefit is paid to based on your named beneficiaries.
Unlike standard life insurance, you cannot choose for the death benefit to be paid directly to your mortgage. Your beneficiaries may choose to use the benefit to cover your outstanding mortgage payments. But taking out a separate life insurance policy can help to make sure that the money will be used to prevent the loss of your home following your death.
What are the potential downfalls of Death in Service?
One of the biggest concerns people may have with this kind of insurance is the payout. Generally speaking, Death in Service pays out around 2-4 times your yearly salary. Unfortunately, for many, this isn’t enough to help their families keep up with everyday expenses, manage their outstanding debt or maintain a familiar way of life in the event of their death. Calculating your life insurance needs comes down to how much your family would need to get by without you. If your Death in Service benefit amount is insufficient, it could be worthwhile taking out a second policy.
Others worry about the reliability of Employee Life Insurance. Consider this: if you leave your job, if you’re made redundant or you retire, your cover will end. Not only that, but your employer could decide to pull the benefit at any time. What’s worse is the older you are when buying life insurance, the more expensive it is. This means that if you find yourself vulnerable due to the loss of your Death in Service, it could cost you a lot to secure a new policy. That’s why it could be better to get life insurance sooner rather than later.
What other options are there?
You can always opt for a standard term life insurance policy. This is typically a policy that lasts for a set term. So, for example, you could get cover for a period of 20 years or 40 years. Once the term is up, your insurance expires. If you die during the policy term, your family will receive a lump-sum payment of your chosen benefit amount.
If you want protection that covers you should you become critically ill or injured, Critical Illness Cover pays out a lump sum while you're still alive. If you're diagnosed with a critical illness, this type of cover could help you with costs associated with your recovery or any financial hardships you may suffer as a result of your diagnoses.
Decreasing Term/Mortgage Life Insurance
Decreasing term insurance – sometimes known as mortgage life insurance – could be ideal for someone looking to put protection in place that aligns with their outstanding mortgage or loan payments. The benefit amount decreases in size with this policy type. You can choose a benefit amount and term that could align with your mortgage or loan being paid off over time.
Over 50 Life Insurance
If you’re aged 50-80 and a UK resident, over 50s life insurance could be a great option. It offers guaranteed acceptance, meaning you can secure a policy even with poor health or when you’re older.
Can I have two life insurance policies?
In short, yes, some insurers allow you to have two life insurance policies (each insurer will have different rules around this). You could have a second life insurance policy as well as your Death in Service policy. It’s not uncommon for people to take out two policies. You could have a mix of term and whole-of-life, employer-provided, or some other kind of policy outside of your work. Our handy life insurance calculator makes it easy to work out how much cover you need so you can compare policies to help you find the right life insurance and save money with Choozi.
How do I get started with buying life insurance?
The very first thing you should do is decide what kind of policy is right for you. You can then calculate how much insurance you need and the cost. Once that’s been taken care of, you can start comparing providers. Here at Choozi, we’re impartial when it comes to showing you some life insurance deals from leading UK providers.