Depending on which package you or your employer opts for there can be a great deal of flexibility in the level of cover, as well as how long the cover will last and any extra cover, such as critical illness or the ability to waive your premium. In some cases, death in service policies will be linked to the company pension scheme meaning you will have to be an active participant in this to take advantage. The main difference between the packages is how the tax efficient life insurance cover is provided and maintained.
Life insurance, on the other hand, can follow you between different jobs even in cases where the cover is initially provided by your employer. However, unless the company you work for is particularly generous in most cases this will not provide sufficient cover to serve all your life insurance needs. The flexibility of life insurance comes in to play once again on this front offering policyholders a greater degree of control in the level of their premium versus the amount of cover they opt for and how this is paid out.
Who receives a pay-out in the event of your death is another key issue that can vary greatly depending on the type of package either you or your employer takes out. While the majority of employers will let you directly nominate a beneficiary, in some cases death in service pay-outs will go into a discretionary trust meaning you may not be able to specify an individual to receive the lump sum. As mentioned, death in service is typically linked to your salary and you will receive a multiple of this should you pass away while on the payroll of your employer.
Both deaths in service benefit and life insurance can be paid into trusts, which can be a boon for those looking to minimise the amount of inheritance tax that will affect the pay-out amount their loved ones receive. This can be particularly pertinent if you want to ring-fence your pay-out for a specific purpose or leave the money to a charity, distant relative or someone other than your immediate family. However, neither tax efficient life insurance nor death in service are substituted for a will, so it’s vital you ensure that nominated beneficiaries are kept up to date if your circumstances change.