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Death in service falls short for long-term financial protection

Planning & protection

26 April 2023


Barry Sime

Life Insurance Policy

The limitations of death in service

Losing a loved one is a heart-breaking experience and dealing with the emotional aftermath can be challenging enough without navigating the financial impact of losing an income.

Death in service is an employee benefit that pays out a tax-free lump sum if you’re employed by the company at the time of your death. You don’t have to die while physically at work for a death in service benefit to pay out, you just need to be on the payroll.

While this is a benefit offered by many UK employers, it may not be enough to cover your loved ones’ long-term financial needs. In this blog, Independent Financial Adviser, Barry Sime explores the limitations of death in service and why it’s crucial to have additional financial protection in place to safeguard your family’s future.


Tied to employment and salary

One of the primary limitations of death in service is that it is tied to your employment. If you change jobs or become unemployed, you may lose this benefit altogether, leaving your family unprotected. Additionally, death in service usually only covers a multiple of your annual salary, which may not be enough to replace your income entirely. This can leave your family struggling to maintain their standard of living, pay off mortgages or loans, and meet day-to-day expenses in the long-term.


No accounting for inflation

As an additional consideration, death in service does not account for inflation, which erodes the purchasing power of money over time.

The lump sum payment that may seem substantial at the time of your death may not be enough to cover rising costs of living, education expenses for your children, or unexpected medical bills years down the line.


Lump sum payment and mismanagement

Another important aspect to consider is that death in service is usually paid out as a lump sum, which may not be the most effective way to manage finances for your loved ones. Without proper financial planning, a large sum of money can be easily mismanaged or depleted, leaving your family vulnerable in the future.


The need for additional protection

To ensure your family’s financial security beyond death in service, it’s crucial to have additional protection in place. Life insurance is a viable option to consider, as it provides a separate policy that is not tied to your employment and can provide a more comprehensive level of coverage.

Life insurance policies can be tailored to your specific needs and can provide a regular income or a lump sum payment to your beneficiaries, depending on your preferences. This can help your family replace lost income, pay off debts, cover ongoing expenses, and even invest for the future.


Importance of estate planning

Proper estate planning is also essential to ensure that your assets, including any death in service or life insurance benefits, are distributed according to your wishes. Setting up trusts, creating a will, and designating beneficiaries can provide added protection and help ensure that your loved ones are financially secure for the long-term.


While death in service is a valuable benefit provided by employers it may not be enough to cover your loved ones’ finances in the long-term.

Factors such as job changes, inflation, and lump sum payments can limit its effectiveness. To truly protect your family’s financial future, it’s crucial to consider additional financial protection. Taking these steps can provide peace of mind knowing that your loved ones will be financially secure even after you’re gone.

Remember, life insurance and estate planning are complex areas, and it’s essential to seek professional advice to ensure that you make informed decisions based on your unique circumstances.

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