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In the UK many employers offer a 'Death in Service' benefit of (for example) 4x annual salary (e.g. £80,000 if the person was earning £20,000) payable if the employee were to die whilst employed by that company.

Where does this money come from? Is it typically from the employer's own funds or from insurance?

If it's an insurance scheme, does the employer also receive a payout in the event of the employee's death and how much would it typically be?

I'm aware of so called "dead peasants insurance" whereby companies took out life insurance policies on their own employees as an investment strategy. I realise this isn't the same, but that's what set me wondering if the employer also 'benefits' from the death of an employee with a Death in Service scheme?

I'm not sure if this UK-specific, maybe other countries have similar schemes.

  • Is this a personal finance question? It appears to be a business choice – MSalters Jan 24 at 9:44
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The employer buys insurance. If one of their employees dies, the insurance company pays out.

It is normally the employees family that benefits. One way of doing this is the insurance pays out to a trust, which then gives the money to the employee's family. This avoids inheritance tax, and hence makes the sum tax free. However, the trust may choose to distribute the money differently to e.g. the employee's own money which they set out in their will.

There is little sense in the employer taking out insurance for themselves; I doubt they take out insurance for their employees handing in their notice, which is far more likely to happen and leaves them in a similar situation of no longer having that employee available. It might make some sense to take out insurance against a large proportion of your workforce dying at once (e.g. due to an accident at your offices) which would significantly affect your company.

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    "There is little sense in the employer taking out insurance for themselves" - sure? en.wikipedia.org/wiki/Key_person_insurance – AakashM Feb 7 at 12:42
  • @AakashM - Sure, for a key person who's on a 2 year notice period, then a sudden death may be worth insuring against. For a generic employee on a 1 month notice period, it'd be pointless. I have assumed that the OP is a generic employee. – AndyT Feb 7 at 14:02

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