Poll shows death-in-service is not a substitute for life cover
People receiving a death-in-service benefit from a loved one’s employer would receive an average payout of between £27,600 and £55,200, leaving them with a mortgage shortfall of £67,678, an analysis shows.
The research from Direct Line Life Insurance found that although the average UK company pays out between one and two years’ salary, 5% pay less than a year’s wages, 18% pay out three to four times salary and 5% pay more than five times salary.
However, 17% of Brits do not know what death-in-service is, 11% do not know if they would be covered by their employer and 42% have no idea how much would be paid out to their loved ones.
The qualifying period for most organisations’ death-in-service benefit coincides with the completion of a probation period (43%).
A further 40% of firms make it available from the first day of service but 18% do not provide cover until an employee has been at the company a year or more.
Despite the potential lag in eligibility, 34% of employees thinks they would be automatically entitled to receive the benefit within their probation period.
The poll also found misconceptions about death-in-service benefits among employees, with 43% believing it will only pay out if they were to die in a workplace-related incident.
There can also be a significant lag in payments, with 14% of firms not releasing the funds for up to three months or more.
The average time for funds to reach the nominated beneficiary, or appropriate discretionary trust, is one to two weeks from notification of death, although 21% will do so immediately.
Jane Morgan, business manager at Direct Line Life Insurance, said although death-in-service 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 warned.