Direct Line magazine

Death in service and life insurance explained

Updated on: 20 September 2022

A father and son hug

Disclaimer: The article below is intended to provide a general description and is not to be treated as advice or a description of a specific life insurance policy or death in service benefit.

What is death in service?

You might assume death in service is the same as life insurance. And, whilst they have some similarities, they are very different. 

Death and service is cover you can buy. It's an employee benefit provided by your employer. The amount of cover you have is decided by your employer, though typically it is a tax-free lump sum between two and four times your annual salary. 

For example:

If you earn £25,000 a year, your family could expect to see receive between £50,000 and £100,000 tax free. 

A payment will only be made if you were to die while working for your current employer. You'll probably need to be on the company's payroll and have passed your probationary period. 

Who receives the death in service payout?

Death in service doesn't always offer you the choice to decide where your money will go. Often, the money is left to your loved ones or placed into a discretionary trust. Your company's death in service policy may ask how you would like the money to be distributed, but it's likely trustees have the final say on who is entitled to the money. 

Death in service schemes can vary from company to company. It's best to check your company's policy to see how the money would be paid. 

Am I covered by death in service?

If your company offers death in service, there might be a few instances where you're not entitled to this benefit. This could be because:

  • Your company may require you to pass your probation
  • Your company may require you to be on their payroll 

To find out if your employer offers a death in service scheme and its entitlement criteria, try reaching out to their human resources department. 

What is life insurance?

If the company you work for doesn't offer a death in service scheme, having a life insurance policy could make sure your loved ones are taken care of if you die or are unable to work due to an illness or injury. 

Life insurance is a policy you can buy to help support your family financially should you die or be diagnosed with a terminal illness. Like death in service, life insurance pays a one-lump cash sum to your loved one. The payout could be used to protect your family financially and cover bills such as  mortgage payments, debt, ongoing costs and even help pay towards funeral expenses

There are two types of life insurance policies: level term cover and decreasing term cover. The length of either cover is completely up to you and what you feel suits your needs best. 

What is level term cover?

Level term cover pays a one lump cash sum to your loves ones. The amount of cover you have, the payments you make and the length of your policy are fixed to what you set.

What is decreasing term cover?

Decreasing term cover is usually cheaper than level term. Your payments will remain fixed but the amount you are covered for will decrease throughout the lenght of your policy. Decreasing term cover can be ideal for situations where you are paying off your debt, such as a mortgage. As your debt decreases, so will the amount your life insurance will pay out. 

What about over 50's life insurance?

When taking out a life insurance policy, we usually choose how long we would like to have the cover for. Whether it's to cover the lenght of your mortage or other debts, you set a duration that suits your needs. With over 50's life insurance, you're covered for the rest of your life.  

As with level and decreasing term, over 50's life insurance will pay out a one-lump sum, when you die. The money could be used to contribute to towards funeral costs or be placed into a trust. 

To find out more about trusts, visit Gov.uk. 

It's important to check the terms and conditions of an over 50's policy, as there might be some rules around what the payout could be used for. 

If you'd like to find out more about our 50's life insurance, head over to our website. 

What is critical illness?

Level and decreasing term insurance both payout if you're diagnosed with a terminal illness, but only if you're diagnosed to pass away within 12 months. Critical illness works a bit differently. If you're diagnosed with an illness that stops you from working, it can have a negative financial impact on your loved ones. Critical illness cover offers to help support your family, should this happen. It can be taken out either as it's own cover, or added to your life insurance policy. 

How much does life insurance cost?

There's no set cost, a life insurance policy differs from person to person, but usually the earlier in life you buy a policy, the cheaper it'll be. This is because your age, health, lifestyle and many other factors are considered by insurers when working out your cost. 

The good news is, once you've agreed to a contract and depending on the policy you've chosen, your payments won't change unless you change the policy. 

What isn't covered by life insurance?

It's a sad truth but life insurance pays out in the event of death or terminal illness diagnosis. We've pulled together a life of a few common events or conditions that life insurance doesn't often cover:

  • Suicide within the first 12 months of a policy
  • Critical illness 
  • Diagnosis of a disability 

There may be other conditions that an insurer won't cover, so it's a good idea to read the full terms and conditions of your contract.

What's the difference between death in service and life insurance?

Both death in service and life insurance help protect your family financially, should the worst happen. You may want to consider life insurance even if you have a death in service policy. 

You can use our calculator to get an idea of how much cover you would need. 

Here's some key differences between the two policies. 

Death in service cover Life insurance
An employer scheme that pays out if you die while on the payroll. A policy that covers the amount you choose and last the time you select. 
No monthly payments if this is included within an employee benefits package. Monthly payments are made. Depending on the policy you choose, once you buy life cover, you may pay the same amount for the duration of the policy.
If you leave the company, you’ll no longer be covered. Life insurance continues to the end of your policy and you may be able to update your cover.
Your family will be entitled to between two and four times your annual salary. Your joint policyholder (if you have one) or estate will receive the pre-agreed amount, which could cover your outstanding mortgage and provide an additional cash sum. Your will can be used to specify how your estate is divided.
Schemes are often set up under a discretionary trust, which means you might not know who’ll get the money if you die. You choose where you would like you money to go.  
The payout can't be assigned to cover your mortgage. You can make it clear in your will, what you would like the payout to cover. Or, you can let the recipient(s) of the money decide. 

Do I need death in service or life insurance?

There's no right or wrong answer. It's not uncommon for people to think they don't need both but, if your death in service payout wouldn't cover all your outstanding debts, or your contract with an employer ends, you may want to consider life insurance too. 

For example: 

If...

  • You earn £25,000 a year 
  • Your oustanding mortgage balance is £200,000
  • And your death in service payout is £75,000 (3 times your salary)
  • £125,000 will still be outstanding towards your mortage

Life insurance can help make sure your debts are cleared, when you die. You can have peace of mind knowing your family is financially secure. 

If you have questions about life insurance, maybe have a read through our FAQs (link will open in a new window).

If you'd like to get a life insurance quote from Direct Line, go to our website (link will open in a new window). 

Related articles

a couple celebrate pregnancy
Lifestyle

How a baby will change your life

There's no bigger milestone in life than having a baby. You might think you know what's coming, but how does having a baby change your life? We go through the important things you'll quickly realise when a newborn joins your family.
A doctor holds someone's hand in support.
Lifestyle

Your Guide to Organ Donation

Just one donor can transform up to nine lives. But there's a lot of confusion about what happens when you join the organ donation register. This guide answers all your questions, including details on how to register, living donation and real-life stories.
a woman in a yellow top smokes a cigarette.
Lifestyle

Life gets better when you stop smoking

Smoking affects all areas of your life. Once you stop, you'll start to see the difference - you'll have more energy, you'll save money and much more. Discover how life gets better.