Details worth knowing. What lies below the headline of death in service?
Forgive the morbid headline but there are, within its grim parameters, details worth knowing when it comes to group life cover.
If group life cover is a baffling phrase, it is also known as group life assurance or, among those employee benefit consultants who still use quill and parchment, death in service benefits.
More succinctly, it’s the insurance employers put in place to pay out to loved ones if an employee dies while on the payroll.
One ever-present aspect is that it remains a sensitive subject, even with the recent unpleasantness of the pandemic bringing the concept – and reality – one step closer to our everyday existence.
So I’ll try to make it as palatable – and genuinely informative – as I can.
1. More of us are dying than we’d expect. The excess death rate in England and Wales, the number above what would be considered normal, is up 20 per cent between 2020 and 2022. Closer inspection reveals the spikes causing this were in the depths of covid.
There will be other aspects and features for statisticians (and insurers) to pore over, but one fundamental is unchanged: on average, one employee in every thousand dies each year.
2. And the urban myths which surround this reality are worth addressing. One we hear all the time is that you have to be at your desk/workplace or travelling to or from it when the fateful moment arrives in order for a pay-out to be made.
The reality is that you have to be on the payroll and employed. If the worst were to happen, working out proximity to your place of work or whether or not you were commuting is something even actuaries might fight shy of factoring in.
3. That’s not to say there isn’t an algorithm probably developed for this specific purpose but the fact it doesn’t need to be applied is because the cost of this cover is so cheap. Fierce competition between insurers means very low premiums.
Very broadly, it can cost as little as £1 for every £1,000 of cover. Employers can also write off the cost against corporation tax but, most importantly, the pay-out is generally tax-free.
4. Group, as opposed to individual, cover is also comprehensive when it comes to the cause of death, as it pays out in cases of suicide. Cold comfort, perhaps, but some comfort, nonetheless. Little more can be said sensibly beyond noting this as a feature you or your colleagues will ideally never have to call on. The insurer’s conundrum is they cannot rely on simply hoping something doesn’t happen.
5. Headline visually and instantly the benefits to those who need clarity and peace-of-mind. Insurance of this nature is routinely described in multiples of salary, in that four years’ worth is the standard sum paid. Why not take it a step further?
For example, "£120,000 is what your family will be paid in the event of your death. This is equivalent to four years’ pay which will not be taxed.” It’s a small but significant step in helping colleagues connect to a financial lifeline at the worst possible time.
Finally, if there were five-and-a-half things to consider, I would also advocate employers loosen the tie between individual salary and pay-out. There is momentum behind grading lump sums more broadly, rather than being calculated on each, specific salary. Detail aside, it becomes an even more compelling demonstration of the value your organisation literally puts on colleagues’ lives.