Definition
A life insurance policy provided by an employer that pays a lump sum to the deceased employee's beneficiaries if the employee dies while employed. The payment is typically expressed as a multiple of the employee's annual salary.
UK Context
Death in service benefits are usually paid through a registered group life scheme, which means the lump sum is paid free of inheritance tax via a discretionary trust. Payments typically range from two to four times the employee's annual salary. The benefit is not taxable as employment income for the employee during their lifetime and does not need to be reported on a P11D.
Best Practices
- Ensure employees complete nomination of beneficiary forms and review them regularly
- Communicate the benefit clearly during onboarding so employees understand its value
- Review the scheme's terms to ensure cover continues during periods of long-term absence
Frequently Asked Questions
Is death in service benefit taxable?
The benefit itself is not taxable as employment income. When paid through a registered group life scheme with a discretionary trust, the lump sum is normally free of inheritance tax. However, the trustees have discretion over who receives the payment.
Does death in service cover continue during sick leave?
In most schemes, cover continues while the employee remains employed, including during periods of sick leave. However, some policies may have exclusions or limitations for pre-existing conditions. Check the specific policy terms.