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Death In Service

A Death in Service scheme commonly known as Group Life Cover provides a lump sum payment to the beneficiaries of an employee should they die whilst in service with the company. This type of cover is generally cheaper than an individual insurance policy because it is arranged on a group basis and preferential rates can be obtained.

The amount of benefit paid for by the employer can be based on either a multiple of salary or a fixed amount for various groups of employees. As the scheme is written under trust, benefits are usually paid out tax free. Features of this arrangement are:

  • A lump sum or a multiple of the employee's salary which includes aggregate pension and life insurance benefits.

    For the 2013/14 tax year the Lifetime Allowance has been set at £1.5 million. Any excess lump sum will be subject to a 55% tax charge.

  • Payable to the employee's spouse, dependants or other beneficiaries (at trustees discretion)
This can be used to provide:
  • A lifetime income or lump sum for the employee's spouse or partner
  • An income for the employee's children until age 18
  • An income for other financial dependants, such as an elderly relative, if the employee has no spouse
Within a Death in Service scheme it is also possible to offer a Spouse's Pension option. This is a guaranteed income that will be payable to a spouse for the rest of their life should the employee die whilst in service with the company. In the event of a claim, the pension received by the spouse (up to a maximum of 4/9ths of the employee's salary) would be liable to income tax as part of their earned income.


 

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