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.

Get a complimentary health check Talk to an adviser

If you are employed, check whether your employer provides death in service cover, what it would pay and who it would be paid to.

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.

Group life claims and limits

£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 normally 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 check the figure your scheme would pay.

£143,436

The average group life claim paid in 2025, out of £1.8bn paid in total. Compare it with 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: It is chosen chiefly for high earners, whose benefit would otherwise eat into an allowance they need for their pension.
Periodic charges on excepted scheme trusts: 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

Above the lump sum and death benefit allowance. A registered scheme payout is tested against the allowance the member had left, reduced by tax free lump sums they had already taken. The excess is taxed as the recipient's income.
If the member died at 75 or over. The lump sum is then taxable as the recipient's pension income.
If it is paid late. Payment has to be made within two years of the scheme administrator learning of the death, or being able reasonably to have learned of it. After that the lump sum is taxable.
If it is paid to the wrong sort of recipient. A payment to a company, or to a trustee who is not a bare trustee, attracts a special lump sum death benefits charge at 45%, which the recipient cannot reclaim.

Death in service cover ends when your employment ends, and it has no cash value.

Death in service and the April 2027 change

The employment condition

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. 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 cover 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

What is death in service?

It is life cover provided by your employer, usually set as a multiple of your basic salary, paid to your family if you die while working for them. It ends on the day your employment ends. The full answer.

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

Employer cover may not be enough on its own. It is set as a multiple of your salary and not against what your household owes, it ends on the day you leave, and you do not control any part of it. The full answer.

What is a relevant life policy?

It is individual life cover that a company buys for an employee, usually a director of a small company with no group scheme. The company pays the premiums and the policy is written under a discretionary trust. The full answer.

How much death in service do I have?

Your employer's scheme booklet or your HR team will tell you. It is normally 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.

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, so work out both and compare them.

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.

Calculators

Relevant life cover calculator

A relevant life premium paid by your company, against the company profit needed to pay the same premium yourself from a dividend or a salary.

Work it out →

Money type questionnaire

Twenty statements about money that sort into four patterns, with a written report on the pattern your answers fit.

Start →

All calculators

The advisers for this subject

Sunny Bharj

Independent Financial Adviser

Tony Springer