Death in service and relevant life cover

Death in service is life cover your employer provides. It ends the day your employment does, and it is not always paid free of tax.

Most employed people have some. Very few know what it would pay, who it would be paid to, or that it stops the moment they leave. It is usually the largest piece of life cover a household has, and the least read.

Directors of small companies often have none at all, because there is no group scheme to join. A relevant life policy is the version built for them, paid for by the company.

What the numbers look like

£1.8bntotal group life claims paid in 2025
75the maximum age an excepted policy can pay to
2 yearsthe window a registered scheme lump sum must be paid in

Claims figures: Group Risk Development (GRiD), 2025. Tax rules: HMRC manuals and legislation.gov.uk, checked 23 September 2026.

Cover is usually set as a multiple of basic salary, and the multiple varies by employer. Whether bonus, commission or other pay counts toward it varies as well, so the figure in your head may not be the figure the scheme would pay.

£143,436
The average group life claim paid in 2025, out of £1.8bn paid in total. Worth holding against your own mortgage and the years your household would still need supporting.

The two structures an employer can use

A registered group life scheme
It is a registered pension scheme, so the payout is tested against the member's remaining lump sum and death benefit allowance. Anything above that is taxed at the recipient's marginal rate.
An excepted group life policy
It sits outside the pension regime entirely, so the allowance does not apply to it. It has to meet conditions of its own: a capital sum on death before an age no higher than 75, the same calculation for every member, no surrender value and no other benefits.
Why an employer might choose the excepted route
Chiefly for high earners, whose benefit would otherwise eat into an allowance they need for their pension.
What people say about periodic charges
Excepted scheme trusts are relevant property trusts, so ten-year and exit charges are possible in principle. HMRC's own position is that the charge is normally nil, because there is normally no value in the trust on the anniversary date.

When it is not tax free

It ends the day your employment does. There is no right to continue it and it has no cash value.

What happens to it in April 2027

Death in service is excluded from the pension change

From 6 April 2027 most unused pension money comes into the estate for inheritance tax. Death in service benefits are carved out of that change.

The carve-out carries a condition worth knowing. It applies where the member was in employment immediately before death, so someone who had already left, or whose employment had ended during long-term sickness, is not obviously covered by it. If that could describe your situation, check it.

Relevant life, for a company with no scheme

What it is
Individual death in service cover an employer buys for one employee, most often a director of a small company. It is defined in the employment income rules and has to meet conditions close to those for an excepted group policy.
Who can have one
It has to be provided by an employer for an employee, so salaried directors qualify. Sole traders, equity partners and members of an LLP do not, because they are not employees.
What it can and cannot include
A capital sum on death before an age no higher than 75, no surrender value and no other benefits, with beneficiaries limited to individuals and charities. Ill health, disablement and accidental death benefits during service are allowed.
How the premiums are treated for the company
Normally an allowable business expense, subject to the wholly and exclusively test. HMRC has no guidance specific to these policies and does look closely at cover for directors who are major shareholders.
How the premiums are treated for the employee
Normally not a taxable benefit in kind. HMRC's wording is that an exemption may apply depending on the circumstances, so this is not automatic.
The trust
The policy is written under a discretionary trust, which is how the condition about who benefits is satisfied and what keeps the proceeds out of the employee's estate.

Questions people ask us

How much death in service do I have?

Your employer's scheme booklet or your HR team will tell you. It is usually a multiple of basic salary. Ask whether bonus and other pay count toward the figure.

Who would it be paid to?

Whoever the trustees decide, guided by a nomination form you complete. It is a separate form from any pension expression of wish, and it is commonly left blank.

Is it enough on its own?

It is set against your salary, and what your household would need is set against your mortgage, your dependants and your other commitments. Those are different sums and they rarely produce the same number.

What happens if I leave my job?

The cover ends. There is no right to continue it and no cash value, so a plan built around employer cover has a gap at every job change.

Can my company pay for life cover if there is no group scheme?

Through a relevant life policy, yes, provided you are an employee of the company. It is the usual route for a small company with one or two directors.

Does it count toward my estate for inheritance tax?

Normally not, where the scheme trustees have discretion over who receives it. Where it is paid to the estate as of right, or under a binding nomination, it can form part of the estate.

Protection policies include exclusions, definitions and eligibility requirements. Tax treatment depends on the structure of the scheme and on your circumstances, and both can change. The Financial Conduct Authority does not regulate tax advice or trusts.

Answered in full

What is death in service?

Life cover your employer provides, usually a multiple of salary, paid if you die while working for them. It ends when the job does.

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Do I still need life insurance if I have death in service?

Usually. Employer cover is set against your salary, ends when the job does, and is rarely the amount your household would need.

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What is a relevant life policy?

Individual death in service cover a company buys for an employee or director, where there is no group scheme.

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The advisers for this subject

Sunny Bharj

Sunny Bharj

Independent Financial Adviser

Tony Springer

Tony Springer

Independent Financial Adviser

Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.

Talk to an adviser

A first conversation of about twenty minutes, at no cost to you. Tell us what is on your mind: a pension you have lost track of, a fixed rate ending, a will you keep meaning to write.