“Death in Service” is a benefit provided for employees by their employer that pays out a lump sum to the survivors, on the death of an employee while they are still working. The benefit is set up as a group life insurance policy and the employer chooses the amount of cover at the outset and pays the appropriate premium.
In many older schemes, the amount of the benefit payable was equal to twice the yearly salary of single employees and four times the yearly salary of married employees. Because of legislation outlawing discrimination at work on the grounds of gender, race, sexual orientation etc., most new schemes now pay a fixed amount on death irrespective of the marital status of the deceased employee.
The premature death of an employee can have a devastating effect on any business, but particularly in small to medium sized enterprises, where the event seems closer and more personal.
Employers may feel under pressure to make a financial gesture to the survivors, but in the current economic climate, cash may not be available, thus compounding the loss and heartache for all concerned. Fellow employees may also feel under pressure to fund raise or organise a collection for their deceased colleague’s family.
A simple group life assurance policy will remove all that pressure at minimum cost and in addition, the premiums payable qualify for tax relief as a business expense.
For limited companies, this reduces the cost by 12.5%, but for the self-employed the reduction in cost can be up to 41%. Because the tax treatment of contributions is generous, the Revenue Commissioners restricts the amount that can be paid out tax-free to a maximum of four times the deceased employee’s final remuneration.
Employers with older schemes in force should have them reviewed to ensure they are not unwittingly discriminating against any section of their work force. Apart from that, the cost of life cover has fallen by 40% over the past 10 years, so there could be a significant saving to be made on premiums payable or alternatively, benefits could be improved at no extra cost.