Death In Service vs. Life Insurance

Understanding the Differences.

Planning for the financial security of our loved ones is a vital aspect of responsible financial management. Life insurance products provide essential coverage to protect beneficiaries in case of a policyholder’s death. Among the various life insurance options available, relying on “Death in Service” or taking out your own “Life Insurance” is a significant choice. 

Having the correct protection in place for your mortgage is an important part of financial planning. Ensuring that the cover you are paying for is fit for purpose is key to ensuring you are obtaining value for money from the protection policies you have chosen to take out to protect yourself and your loved ones. 

When providing a mortgage recommendation, we will usually look to review the protection arrangements a client has, or should consider having, in place. These will provide the foundation for that mortgage debt and protecting your family and dependents in the event of death where a mortgage exists is often the starting point of the discussion. 

A common client view is that Death in Service can be relied on to protect the family in relation to their mortgage. Death in Service is an excellent employment benefit to have but in reality, it is not designed to repay a mortgage debt and therefore will often be unreliable in this regard. Here we explore the differences between Death in Service and arranging your own Life Cover policy and why the latter is more often than not, the best option to consider when looking to ensure a mortgage is repaid in the event of death.

Death in Service Insurance 

Death in Service insurance, also known as Group Life Insurance, is typically offered by employers as part of their employee benefits package. This policy provides a lump sum pay-out to the designated beneficiaries if the insured employee passes away while still working for the employer. The death benefit is usually a multiple of the employee’s annual salary, and it is tax-free. Death in Service insurance is designed to offer financial protection to an employee’s dependents and loved ones in case of an untimely death while actively employed by attempting to replace the income they would have normally earnt if they had not died.

*The Financial Conduct Authority does not regulate employee benefits.

Life Insurance

Life Insurance, on the other hand, is a personal insurance policy that is purchased independently. Unlike Death in Service insurance, the policyholder has more control over the coverage amount and policy terms. Life insurance can be term-based (to match the term of a mortgage for example or the period where an individual expects to have financial dependents) or whole of life. Term life insurance provides coverage for a specific period and can be either ‘level’ (stays the same until the end of the policy) or decreasing (reduces, for example to protect a repayment mortgage) paying out a death benefit if the insured individual passes away during the policy term. Whole of life insurance, on the other hand, provides lifelong coverage with the death benefit paid to the policy’s beneficiaries upon the death of the insured. This can help with funeral costs, tax planning and other identified needs.

Ownership and Portability 

An essential difference between Death in Service and Life Insurance lies in ownership and portability. Death in Service insurance is typically owned and provided by the employer, and it only covers the employee while they are actively working for the company. In contrast, Life Insurance is personally owned, and the policyholder has the freedom to change jobs or even retire while still maintaining coverage. This portability and personal ownership of Life Insurance provide individuals with greater flexibility and control over their coverage.

Coverage Amount and Flexibility

Death in Service insurance coverage is often based on a multiple of the employee’s salary, determined by the employer. While it offers a basic level of financial protection, it may not be sufficient to meet all the financial needs of the beneficiaries. In contrast, with Life Insurance, individuals can choose the coverage amount they need based on their specific financial goals and family circumstances. This flexibility allows policyholders to tailor their life insurance coverage to meet the unique needs of their loved ones.

In conclusion, Death in Service and Life Insurance are both essential tools to safeguard the financial future of loved ones in the event of the policyholder’s death. While Death in Service is an employer-provided group insurance offering basic protection, Life Insurance offers personal ownership, portability, and the flexibility to tailor coverage amounts to individual needs. 

Careful consideration of your personal circumstances and financial goals will help you choose the right policy for your family’s security. Get in touch today by calling 01932 943028 or emailing info@resolvefs.co.uk

*Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions.

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