Many employers offer a Death in Service benefit, which pays a lump sum to dependants if an employee dies while working for them. In this guide, we’ll tell you everything you need to know about Death in Service, what it is, how it works, and how it differs from private life insurance.What is Death in Service?Death in Service is one of the best employee benefits an employer can offer. It means an employer will pay out a lump sum if someone dies while working for the company. Usually, they just have to be on the payroll in order to be eligible, and the death doesn’t have to be work-related.In the event of an employee's death, a nominated beneficiary will receive a tax-free lump sum. This income can be hugely beneficial to a grieving family and help cover daily bills such as food, rent, school fees, funeral costs and more.Read our blog to find out more about the benefits of offering employee benefits such as Death in Service to your employees. How much do you get for Death in Service?The cover typically pays out between 3 and 5 times annual salary, but some do pay less. The exact amount received will therefore depend on income as well as the terms of the policy.For example, if someone earns £40,000 a year before tax and the Death in Service policy pays out 5x salary, the family will receive £200,000 in the event of their death. If someone earns £50,000 and has a policy offering a 3x salary payment, they will get £150,000.With the Death in Service benefit from YuLife, you can either be covered for a multiple of your salary (up to 5x) or a fixed amount (maximum of £500,000), as long as it does not exceed 5x salary.Is Death in Service the same as Life Insurance?Death in Service, also known as Group Life Insurance, provides a financial cushion for someone's family in the event of their death. While the money paid out by the Death in Service benefit may seem like a lot, it can very quickly be eaten up by expenses such as funeral costs and mortgage repayments. It’s therefore important to think about your individual circumstances and consider whether up to 5x annual salary would be enough to support beneficiaries or loved ones.Many people with a Death in Service benefit also apply for private life insurance as a way to ‘top up’ and help pay off their existing mortgage. Most private life insurance policies pay out up to 10x your annual income, which is a lot more than even the most generous Death in Service benefits. Private life insurance premiums will often be lower if you already have a Death in Service policy in place.Who gets a Death in Service payment?The Death in Service lump sum will be paid directly to the chosen beneficiary, or into a discretionary trust that then pays it to the loved one. Either way, it’s important to nominate the person who you want to receive the money should you die unexpectedly.How long does Death in Service take to pay out?The time it takes for loved ones to receive the money will depend on the employer and the terms of the Death in Service policy. If everything goes smoothly, the payout can be made in as little as two weeks—but some families might have to wait a month or more for the money to come through.The two main reasons for a Death in Service payment delay are missing paperwork and the need for an investigation into the cause of death.When you sign up for Death in Service cover, you will be asked to fill out a form detailing who you want the payout to go to. If that document can’t be found, then the payment might be delayed until it is decided who the beneficiary should be—usually the next of kin.If the death was unexpected or looks suspicious, payment will usually be delayed until an investigation has been completed.Is Death in Service taxable?The money received from a Death in Service scheme is a tax-free lump sum. Companies achieve this by keeping the policy in trust and paying any money to families via that trust, thereby sheltering it from Inheritance Tax.However, lump sum Death in Service benefits do count towards your lifetime allowance—the limit on how much you can build up in pension benefits while still enjoying the full tax benefits. Any employee whose lump sum takes them over the allowance will be affected, particularly high earners with death benefits based on a high multiple of salary. The tax is payable when the benefits are paid to the beneficiaries.Does Death in Service form part of your estate?By paying the money from the cover to nominated beneficiaries via a trust, the death benefits do not form part of someone's estate and are therefore not chargeable to Inheritance Tax.Can Death in Service be contested?The trustees of the scheme decide how and to whom benefits are paid, however complications can arise. If the named beneficiary has also died, or cannot be located, the trustees might need to decide who to pay. Or another previously unknown partner or family reliant on the employee’s wage might come forward.It may be possible to contest the nomination if there is reason to believe it was out of date, or that the trustees have not identified all of the possible dependants.Complaints can be taken to the Pensions Ombudsman, and ultimately the courts. Because the trustees have broad discretion, their decision will usually be upheld, but they must have acted in a reasonable manner. If a trustee’s decision is contested and declared unreasonable, the decision can be overturned.Does Death in Service cover cancer?Death in Service pays out a cash sum if someone passes away while employed by the company offering the benefit. So, if cancer is the cause of death then, yes, it is covered.Death in Service: terminal illnessThe NHS defines terminal illness as a ‘health condition you’ll most likely die from’. A terminal illness may also be referred to as a ‘life-limiting illness’ or ‘incurable illness’.Someone with a terminal illness may live for days, weeks, months or even years and it can be difficult for healthcare professionals to predict exactly how long that might be. Examples of some illnesses that can be terminal include:Advanced CancerDementia (including Alzheimer’s)Motor Neurone Disease (MND)Advanced Heart DiseaseDeath in Service is usually only paid out if an employee dies while they are still employed so it is important that someone with a terminal illness understands the implications of stopping work in terms of their eligibility for Group Life Insurance payments. There are terminal life insurance policies available that will pay off your mortgage debts while you are still alive if you are diagnosed with an incurable illness.How does an employee know if they are covered by Death in Service?An employee should check with their employer to see if they have any protection. For more information about providing financial support for your team that not only secures against unforeseeable future circumstances but also offers rewards and wellness benefits to encourage healthy living, read about YuLife's Death in Service coverage.