There are some key differences between Personal Life Insurance and company provided Death-in-Service Benefit. Learn more about these below, or get in touch for a free financial review.
Life Insurance forms a key pillar of providing peace of mind for individuals and their families. It is important to spend the time to think about the “what if” scenario and ensure that a family is in the best position to deal with a sudden shock, and achieve what life has in store for them.
There are a whole host of reasons for putting life insurance in place, from paying off debts such as mortgages or possibly flight training loans, settling inheritance tax liabilities or leaving a legacy to fund future expenses such as university fees for their children or grandchildren.
Employers often provide Life Insurance, commonly renamed as Death in Service benefit. It’s important to understand the key differences between Death in Service benefit and Personal Life Insurance plans
These policies typically offer cover for a specific term (such as to a given age or set number of years), or for a person’s entire life, depending on the policy chosen.
The amount of cover is determined by the policyholder to fit a given purpose. That may be to match a mortgage balance or to provide a real-terms lump sum for the family.
There are options to guarantee the cost of the policy, providing protection from increased insurance costs. Reviewable options are also available.
This is typically offered at no cost to the employee, providing a lump sum to the employees’ beneficiaries in the event of their death, whilst employed by the company.
The amount of cover is typically a ratio of the employee’s salary, or a fixed amount predetermined by the employer.
Top ups of cover are sometimes available, normally on a reviewable basis, meaning the cost of cover can change over time.
Should an employee opt to go part-time, it may be the case that the amount of cover of the policy will reduce by a commensurate amount.
Personal Life Insurance policies are independent of employment status, providing coverage regardless of your job or employer.
The policyholder has control over the coverage amount, beneficiaries and policy terms.
The policy will remain in force for as long as the premiums are paid, even if you change jobs, go part-time or retire early.
Employer provided Life Insurance is contingent upon the individuals employment with a specific company; if the employee leaves, the benefit will end. If this is not replaced by another employer to a suitable value, the individual will need to purchase a Personal Life Insurance policy, but at an older age and potentially subject to underwriting conditions.
The coverage amount is generally set by the employer (although top-ups may be available), but it is possible this may not be sufficient to meet all of their financial needs.
Cover provided at the employers’ expense is a great work benefit to be in receipt of, but solely relying on it can leave the individual and their loved ones vulnerable in case of job loss or career change.
Options include ‘Term Life Insurance’ (for a set number of years or until a given age), or ‘Whole of Life’ (with no predetermined policy end date).
Supplementary benefits are often included as standard by the provider, such as 24-hour GP services, or second opinion consultant services.
The policyholder has the freedom to choose and make changes to the beneficiaries as circumstances evolve.
Due to the number of employees covered under many of the schemes in place, there is often little opportunity to customise cover.
Changes to the policy or beneficiaries may or may not require employer approval.
In conclusion, employer provided Life Insurance is a valuable benefit to be provided with, but how it fits in with an individuals’ overall financial situation needs to be carefully considered. For priority areas such as covering debts or essential future spending commitments, it is often advisable to have in place specific Personal Life Insurance plans.