What if I left my job?
Death in Service vs Life Insurance: What's the Difference?
- Published
- Last reviewed
- Reading time
- 3 min read
This guide provides general information only. It is not financial advice or a personal recommendation and does not take account of your individual circumstances.
Quick answer
Death in service is a workplace benefit that pays a lump sum, often a multiple of salary, if you die while employed. Personal life insurance is a policy you own. The biggest difference is that death in service usually ends when you leave the job, while a personal policy continues as long as you pay the premiums.
Key figures
- salary is a common death-in-service multiple
- 2–4×
- pension IHT changes start; death in service is excluded
- 6 April 2027
- lump sum and death benefit allowance for most people
- £1,073,100
What death in service is
Death in service is a benefit some employers provide. If you die while employed, it pays a tax-efficient lump sum to your beneficiaries, often calculated as a multiple of your salary, such as two, three or four times.
It is usually provided through the employer's pension scheme or a group life insurance scheme, and it usually costs employees nothing directly.
How it is paid
The lump sum is normally paid at the discretion of the scheme's trustees. To guide them, you fill in an expression of wish (sometimes called a nomination form) saying who you would like to receive it.
Trustees aren't strictly bound by it, but they usually follow it. An out-of-date form, for example one naming a former partner, can cause delays and distress, so it is worth checking after any life change.
The key differences
Who owns it
- Death in service belongs to your employer's scheme.
- Personal life insurance is your own policy.
How long it lasts
- Death in service usually ends when you leave the job, including when you go contracting, take a career break or are made redundant.
- Personal cover continues for its term, whatever happens with your job.
How much it pays
- Death in service is linked to your salary, so it changes if your pay changes.
- Personal cover is the amount you choose, based on your family's needs.
Who decides who gets it
- For death in service, the trustees decide, guided by your expression of wish.
- For a personal policy written in trust, your chosen trustees pay your chosen beneficiaries.
Tax
Death-in-service lump sums from registered pension schemes are generally paid free of Inheritance Tax. From 6 April 2027, most unused pension funds and pension death benefits come into scope for Inheritance Tax, but death-in-service benefits are specifically excluded from that change.
Separately, tax-free lump sums from registered pension schemes are limited by the lump sum and death benefit allowance, which is £1,073,100 for most people. This is only likely to matter for very high earners or people with large pension savings.
When the gap matters
Relying only on death in service can leave a gap in situations like these:
- moving jobs, especially if there is a delay before a new employer's scheme starts
- moving into contracting or self-employment
- taking a career break or parental leave, depending on the scheme
- redundancy
- a new employer offering a lower multiple, or none at all
A hypothetical example
Chris earns £60,000 and his employer's death-in-service benefit is four times salary, so £240,000 while he is employed.
- While employed, that £240,000 would be available to his family, guided by his expression of wish.
- If Chris left to go contracting, that cover would end on his last day. Any cover afterwards would depend on personal policies.
Questions worth considering
- What multiple of salary does my employer's scheme pay, and is my expression of wish up to date?
- Would my family's needs be met by that amount, or is it simply whatever my salary happens to be?
- What would happen to this cover if I changed jobs, went contracting or took a break?
- Do I have any cover that doesn't depend on my employer?
Frequently asked questions
Usually, yes. It is linked to your employment, so it normally ends when you leave, although a new employer may offer its own scheme.
Death-in-service lump sums from registered pension schemes are generally paid free of Inheritance Tax, and they are excluded from the pension changes that start on 6 April 2027.
It tells the scheme trustees who you would like to receive your death-in-service benefit. Trustees usually follow it, so keeping it up to date matters.