Life Insurance
Life insurance is an employee benefit that pays a lump sum to the employee's dependents if they die while employed by the company.
benefits
Category
beginner
Difficulty
4 min read
Read time
2025-01-15
Updated
Definition
Short definition
Life insurance is an employee benefit that pays a lump sum to the employee's dependents if they die while employed by the company.
Detailed explanation
Life insurance, often called "death in service" benefit, provides financial protection for employees' families. If an employee dies while working for the company, a lump sum payment is made to their nominated beneficiaries.
The benefit is typically expressed as a multiple of salary, commonly 2x to 4x annual salary. Group life insurance is often more affordable than individual policies and may not require medical underwriting.
This benefit provides peace of mind to employees and is a valued component of a comprehensive benefits package.
Practical guidance
How it works
Employers take out group life insurance covering all eligible employees. Employees nominate beneficiaries using an expression of wish form. If an employee dies, the insurer pays the benefit, typically via trustees who distribute according to employee wishes.
Best practices
Write policy in trust to avoid IHT
Regularly remind employees to update nominations
Communicate benefit value clearly
Consider offering flexible cover options
Legal context
Legal basis
Not legally required; governed by policy terms and employment contract
Jurisdiction: UK/Global
Key provisions
Cover amount typically expressed as salary multiple
Usually written in trust to avoid inheritance tax
Nomination of beneficiaries required
May have free cover limits for underwriting
Official source
Frequently asked questions
What is death in service benefit?
Death in service is life insurance provided by your employer. If you die while employed, a lump sum (typically 2-4x your salary) is paid to your nominated beneficiaries.
Who receives the death in service payment?
The payment goes to beneficiaries you've nominated using an "expression of wish" form. If held in trust (as is common), trustees consider your wishes when distributing.
Is death in service benefit taxable?
If the policy is held in trust (as most group schemes are), the benefit is usually free of inheritance tax. The lump sum is paid directly to beneficiaries without going through your estate.
Related glossary terms
Health Insurance
Health insurance is a benefit provided by employers that covers private medical treatment costs for employees and sometimes their families.
Pension Contributions
Pension contributions are regular payments made by employers and employees into a workplace pension scheme to provide retirement income.