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Employees unaware of death in service benefits

Misconceptions around death in service benefits could be leaving employees in a vulnerable financial position, according to research from Direct Line Group

It revealed that despite 89% of the employers surveyed offering a death in service benefit, which will pay out in the event of death, 17% of workers are unaware of these benefits and 11% do not know if they would be covered by their employer.

Of the workers surveyed, 43% believed this benefit would only be paid out if they were to die in a workplace-related incident. In addition, 42% with the benefit do not know how much would be paid out to their loved ones.

While UK companies on average pay out between one and two years’ salary if they offer a death in service benefit, one in 20 (5%) pay less than a year's wages.

However, some organisations are more generous, with 18% paying out three to four times an individual’s salary and 5% paying more than five times a person’s annual salary as standard. An individual’s seniority is also likely to impact the level of cover, with 68% of firms who offer death in service benefits increasing cover for employees in senior management.

While 40% of firms make a death in service benefit available from the first day of service, the qualifying period for most organisations coincides with the completion of a probation period (43%). However, a third (34%) of employees think they would be automatically entitled to receive this benefit within their probation period.

The research also found a delay in making payments, with 14% of firms not releasing the funds for up to three months or more. The average time for these funds to reach the nominated beneficiary, or appropriate discretionary trust, was one to two weeks from notification of death, although 21% do so immediately.

Almost a third (32%) of employers do not automatically pay death in service to a nominee (a person selected by the employee to receive it). Instead the monies are paid into a discretionary trust.

Jane Morgan, business manager at Direct Line Life Insurance, warned that the average death in service benefit, which is estimated to be between £27,600 and £55,200, was not enough to cover the average mortgage balance, meaning that some families could be left in a vulnerable position.

“There is a great deal of confusion and misunderstanding regarding ‘death in service’. While it would be an invaluable employee benefit for many families if the worst were to happen, the amount paid out is unlikely to cover their outstanding mortgage balance. This could leave families in a financially-vulnerable position, especially having lost an income, adding extra pressure at an already emotional and difficult time,” she said.