Death in Service Benefit
Discussion
I have a death in service benefit with my job, that pays my next of kin a multiple of my annual salary in the event of my demise whilst employed. The death doesn't need to be employment related, I could keel over on holiday and the benefit is still payable.
I've always taken this benefit into account when calculating my life insurance requirements, taking out less than I otherwise would due to the death in service payment.
But what would happen if I got some terrible illness, like motor neurone disease or similar, whereby I couldn't work but might not die for a couple of years. Would my wife get nothing, as I wasn't employed at time of death, or would the fact that I died of the illness that forced me to stop working be good enough?
I've always taken this benefit into account when calculating my life insurance requirements, taking out less than I otherwise would due to the death in service payment.
But what would happen if I got some terrible illness, like motor neurone disease or similar, whereby I couldn't work but might not die for a couple of years. Would my wife get nothing, as I wasn't employed at time of death, or would the fact that I died of the illness that forced me to stop working be good enough?
You will get paperwork with the benefit, I would suggest reading it.
It is likely that death in service is only payable if you are employed. My company would continue to employ me if I was on long term sick (so the DIS is payable) but there is a limit. I am insured against long term sick as well, for me and for the Company.
Anyhow, read your terms and conditions, they will take precedent over anything any random internet person says.
See a Financial Adviser as well if you are worried about your family in the event of your incapacity.
It is likely that death in service is only payable if you are employed. My company would continue to employ me if I was on long term sick (so the DIS is payable) but there is a limit. I am insured against long term sick as well, for me and for the Company.
Anyhow, read your terms and conditions, they will take precedent over anything any random internet person says.
See a Financial Adviser as well if you are worried about your family in the event of your incapacity.
It's worth considering in the life insurance /providing for family equation that most people who suffer some life changing disaster don't actually die but suffer some incapacity which prevents them from working.
Therefore income protection cover or something similar is worth considering, personally I don't like the concept of critical illness cover as they only pay out for a specific list of situations.
At my old job before I joined the pensioner brigade, I had at times 4x or 3x salary dependant on where I worked. The one with 3x salary also had a serious illness clause whereby if I'd been incapacitated then I would have been paid a significant % of my salary until normal retirement age, pension payments would have been kept up and at normal pension age then I would receive a full earned pension as if I'd worked until 65. There was also an extra lump sum payment on top of the 4x or 3x salary if death or serious injury whilst travelling on company business.
As I also had an income protection cover of my own which again would pay a % of salary, I enquired about the situation of potential double cover. Was told that in the event both companies would pay out but that they would split the payments up to the maximum allowable % of salary allowed by HMRC. Forget the details of the limit. So in effect I had double cover, but couldn't cancel eitherof them without significant losses.
Aside note:- Reason for interest was at the time I was suffering a serious condition that the medics were not clear what was happening or how to treat. My doctor was on the point of deciding whether to declare that I should give up work, and had only refrained from doing so because of my desire to remain in employment somehow, and work were willing to accommodate extended time on light / part time duties to see what happened. In the event the condition cured itself and we still aren't sure what happened, and eventually went back to full time full duties, but that's by the by, thankfully.
So in answer to the OP question, have just tried to illustrate there are a huge number of possibilities and the only way to deal with this is to understand the ins and outs of the scheme specifics and then take good independent advice.
Therefore income protection cover or something similar is worth considering, personally I don't like the concept of critical illness cover as they only pay out for a specific list of situations.
At my old job before I joined the pensioner brigade, I had at times 4x or 3x salary dependant on where I worked. The one with 3x salary also had a serious illness clause whereby if I'd been incapacitated then I would have been paid a significant % of my salary until normal retirement age, pension payments would have been kept up and at normal pension age then I would receive a full earned pension as if I'd worked until 65. There was also an extra lump sum payment on top of the 4x or 3x salary if death or serious injury whilst travelling on company business.
As I also had an income protection cover of my own which again would pay a % of salary, I enquired about the situation of potential double cover. Was told that in the event both companies would pay out but that they would split the payments up to the maximum allowable % of salary allowed by HMRC. Forget the details of the limit. So in effect I had double cover, but couldn't cancel eitherof them without significant losses.
Aside note:- Reason for interest was at the time I was suffering a serious condition that the medics were not clear what was happening or how to treat. My doctor was on the point of deciding whether to declare that I should give up work, and had only refrained from doing so because of my desire to remain in employment somehow, and work were willing to accommodate extended time on light / part time duties to see what happened. In the event the condition cured itself and we still aren't sure what happened, and eventually went back to full time full duties, but that's by the by, thankfully.
So in answer to the OP question, have just tried to illustrate there are a huge number of possibilities and the only way to deal with this is to understand the ins and outs of the scheme specifics and then take good independent advice.
TwigtheWonderkid said:
I have a death in service benefit with my job, that pays my next of kin a multiple of my annual salary in the event of my demise whilst employed. The death doesn't need to be employment related, I could keel over on holiday and the benefit is still payable.
I've always taken this benefit into account when calculating my life insurance requirements, taking out less than I otherwise would due to the death in service payment.
But what would happen if I got some terrible illness, like motor neurone disease or similar, whereby I couldn't work but might not die for a couple of years. Would my wife get nothing, as I wasn't employed at time of death, or would the fact that I died of the illness that forced me to stop working be good enough?
My Dad lost out on my Mum's death in service benefit because she outlived the defined time limit set out in the policy by a matter of weeks. IIRC it was 3 years from packing up work - was going to fight it at the time but on reflection it quickly became insignificant. Just another example of life not being very fair.I've always taken this benefit into account when calculating my life insurance requirements, taking out less than I otherwise would due to the death in service payment.
But what would happen if I got some terrible illness, like motor neurone disease or similar, whereby I couldn't work but might not die for a couple of years. Would my wife get nothing, as I wasn't employed at time of death, or would the fact that I died of the illness that forced me to stop working be good enough?
However, my father in law's death in service benefit payed out way more than we expected due to him dying a day before his 60th birthday. Very unexpected and the poor b
d missed it by hours. Had he lived to 60 this wouldnt have applied - again a serious amount of cash.The strange world of insurance!
You say that the death benefit is paid to your next of kin. I doubt if this is actually the case. Just about all company sponsored death benefits are paid under what's called a discretionary trust under which the trustees have the responsibility to decide from a class of potential beneficiaries who will receive all or a share of the death benefits. The rules of the plan will set out in detail the classes of beneficiaries which will include your next of kin and also all your far flung relations. To help the trustees, employees are usually asked to complete what's called a nomination form so the employee is able to indicate who he would LIKE the beneficiaries to be and in what shares the death benefit is distributed to them; quite often the employee will indicate something like "wife:100%". On death the trustees get the nomination form etc, find out the then personal relationships etc and decide how to distribute the death benefits. Two points:
1. If the trustees do their job right they should look fully into the employee's circumstances at death with only an eye on what's on the nomination form. Why? Well, suppose that the nomination form is old and the employee has divorced and remarried: did he really want the trustees to pay his benefits to his first wife? Probably not. More likely he wants the second wife to have the benefits, but that would not be a strict interpretation of the old nomination form. When you consider other potential beneficiaries eg children, brothers snd sisters, you can see the need to consider circumstances at death, not when the nomination form was completed.
2. Following on from the above, ALWAYS KEEP YOUR NOMINATION FORM UP TO DATE. As your circumstances change you should complete a new nomination form. That way, if you do die, the trustees have an indication of your latest wishes. And also mention names of the beneficiaries, not their reletionship: put in, for example, "Mrs. AB Smith" not "Wife" or the name(s) of children, not "Child".
You may wonder why this procedure is typical in UK death benefit plans. The reason is that if the benefit was, as you say, paid direct to the next of kin, there will be a liability to inheritence tax (IHT): the amount will be added to the employee's estate and IHT will then be calculated and paid. IHT can be a very significant amount. By arranging payment of this death benefit via a discretionary trust all IHT on it is avoided. It so happens that the amount can be distributed to the beneficiaries quickly too as it is outside the employee's estate.
Needless to say, there are often issues arising where the trustees decide to use their discretion to pay the benefit in a way not expected by the beneficiaries, because the way the benefit etc is set up is not understood. Distress can follow. However, the trustees do have wide powers in this regard and the fact that these are rarely legally challenged indicates that the trustees are usually on safe ground with their decisions and processes leading up to them.
To answer your specific question, there needs to be a contract of employment for the death benefits to arise. If the contract is terminated then the death benefits cease. Note that illness is a reasobale cause for an employer to terminate a contract of employment. Of course, serious illness may mean a period of absence from work but as the contract will be maintained during this period, death cover will stay in place. So, if you leave service or your contract is terminated, you should consider replacement cover at your personal expense, which will not be cheap.
R.
1. If the trustees do their job right they should look fully into the employee's circumstances at death with only an eye on what's on the nomination form. Why? Well, suppose that the nomination form is old and the employee has divorced and remarried: did he really want the trustees to pay his benefits to his first wife? Probably not. More likely he wants the second wife to have the benefits, but that would not be a strict interpretation of the old nomination form. When you consider other potential beneficiaries eg children, brothers snd sisters, you can see the need to consider circumstances at death, not when the nomination form was completed.
2. Following on from the above, ALWAYS KEEP YOUR NOMINATION FORM UP TO DATE. As your circumstances change you should complete a new nomination form. That way, if you do die, the trustees have an indication of your latest wishes. And also mention names of the beneficiaries, not their reletionship: put in, for example, "Mrs. AB Smith" not "Wife" or the name(s) of children, not "Child".
You may wonder why this procedure is typical in UK death benefit plans. The reason is that if the benefit was, as you say, paid direct to the next of kin, there will be a liability to inheritence tax (IHT): the amount will be added to the employee's estate and IHT will then be calculated and paid. IHT can be a very significant amount. By arranging payment of this death benefit via a discretionary trust all IHT on it is avoided. It so happens that the amount can be distributed to the beneficiaries quickly too as it is outside the employee's estate.
Needless to say, there are often issues arising where the trustees decide to use their discretion to pay the benefit in a way not expected by the beneficiaries, because the way the benefit etc is set up is not understood. Distress can follow. However, the trustees do have wide powers in this regard and the fact that these are rarely legally challenged indicates that the trustees are usually on safe ground with their decisions and processes leading up to them.
To answer your specific question, there needs to be a contract of employment for the death benefits to arise. If the contract is terminated then the death benefits cease. Note that illness is a reasobale cause for an employer to terminate a contract of employment. Of course, serious illness may mean a period of absence from work but as the contract will be maintained during this period, death cover will stay in place. So, if you leave service or your contract is terminated, you should consider replacement cover at your personal expense, which will not be cheap.
R.
Like you I had 4 * salary death in service which I always thought would cover my OH in case of my premature death, never dreaming I'd have to give up work. Cancer struck and I was pushed into retirement last year - no more life insurance or death in service benefit, and an illness which makes getting it pretty unlikely.
Being over 50 (just!), my best work around has been to invest the max £100 a month into a no questions asked over 50's plan, which when I go will at least pay my OH about £48K - nothing like what he'd have had, but not to be sniffed at. Given my projected life expectancy of 2 to 3 years (I intend going on longer!!) that doesn't seem a bad deal for my investment, but I wish I had something more substantial in place before the cancer struck.
Being over 50 (just!), my best work around has been to invest the max £100 a month into a no questions asked over 50's plan, which when I go will at least pay my OH about £48K - nothing like what he'd have had, but not to be sniffed at. Given my projected life expectancy of 2 to 3 years (I intend going on longer!!) that doesn't seem a bad deal for my investment, but I wish I had something more substantial in place before the cancer struck.
Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff