Britons receiving a death in service benefit from a loved one’s employer would receive on average between one and two years’ of their salary – estimated to be between £27,600 and £55,200, according to new research from Direct Line Life Insurance.
However, if all these funds were paid towards an outstanding mortgage balance at the time of a person’s death, it would still leave the average Briton with a mortgage shortfall of £67,678.
Despite 89% of employers surveyed offering a death in service benefit, which will pay out in the event of death, so long as the individual who passed away was under contract and qualifies for the benefit, almost a fifth (17%) of Brits don’t even know what death in service is and 11% do not know if they would be covered by their employer.
In addition, millions of workers have no idea how much those left behind would be eligible to receive, as 42% of employees with this benefit have no idea how much would be paid out to their loved ones in the event of them passing away.
While UK companies on average pay-out between one and two years’ salary if they offer a death in service benefit, one in twenty (5%) pay less than a years’ wages. However, some organisations are more generous with 18% paying out three to four times an individual’s salary and 5% paying out more than five times a person’s annual salary as standard. An individual’s seniority within an organisation is also likely to have an impact on the level of cover offered, with 68% of firms who offer death in service benefits increasing cover for employees in senior management positions.
The qualifying period for most organisations’ death in service benefit coincides with the completion of a probation period (43%), closely followed by firms who make it available from the first day of service (40%, followed by firms who do not pay-out this benefit until an employee has been at the company a year or more 18%). Despite the potential lag in eligibility for these benefits, a third (34%) of employees thinks they would be automatically entitled to receive this benefit within their probation period.
Research amongst employees reveals there are significant misconceptions about death in service benefits, with 43% of Brits believing this benefit only will pay out if they were to die in a workplace related incident.
When it comes to receipt of death in service benefits there can be a significant lag in payments, with HR professionals revealing that 14% of firms would not release the funds for up to three months or more. The average time for these funds to reach the nominated beneficiary, or appropriate discretionary trust, is one to two weeks from notification of death although 21% will do so immediately.
32% of employers do not automatically pay death in service to a nominee (a person selected by the employee to receive it), instead the monies are paid into a discretionary trust. This means it is the company not the individual who determines to whom the benefit is paid. However, if this does go to a nominated recipient 66% of those eligible to nominate a recipient listed their spouse or partner, 15% would leave it to their parents and 9% would leave it to their children.
Jane Morgan, business manager at Direct Line Life Insurance, said: “There is a great deal of confusion and misunderstanding regarding ‘death in service’. While it would be an invaluable employee benefit for many families if the worst were to happen, the amount paid out is unlikely to cover their outstanding mortgage balance. This could leave families in a financially vulnerable position, especially having lost an income, adding extra pressure at an already emotional and difficult time.”
A further 18% believe death in service is a direct replacement for life insurance, despite coverage levels typically being far lower and people not being covered if they are between job roles. Despite this, more than one in ten (13%) of Brits mistakenly believe this is the case.
Morgan added: “Life insurance is not something anyone wants to think about. It’s easy to say ‘I’ll think about that later’ or put it off for a rainy day, but it’s important to be prepared for your financial future, no matter what life may bring. Although it can appear intimidating, it’s important to plan for your financial future, it’s not as boggling or as expensive as you might think.
Direct Line Life Insurance offers an affordable way for families to help look after loved ones financially if someone passes away, paying out a lump sum, to help deal with every day money concerns such as household bills, childcare costs and mortgage payments.”