The average death in service benefit would leave Brits an average £67,678 shortfall on their mortgage.
According to latest research from Direct Line Life Insurance, Brits receiving a death in service benefit from a loved one’s employer would receive on average between one and two years’ of their salary - estimated to be between £27,600 and £55,200.
However, if all these funds were paid towards an outstanding mortgage balance at the time of a person’s death, it would leave the average Brit with a shortfall of close to £68,000.
Despite 89% of employers surveyed offering a death in service benefit, which will pay out in the event of death, so long as the individual who passed away was under contract and qualifies for the benefit, almost a fifth (17%) of Brits don’t even know what death in service is and 11% do not know if they would be covered by their employer.
In addition, millions of workers have no idea how much those left behind would be eligible to receive, as 42% of employees with this benefit have no idea how much would be paid out to their loved ones in the event of them passing away.
While UK companies on average pay-out between one and two years’ salary if they offer a death in service benefit, one in twenty (5%) pay less than a years’ wages. However, some organisations are more generous with 18 per cent paying out three to four times an individual’s salary and five per cent paying out more than five times a person’s annual salary as standard. An individual’s seniority within an organisation is also likely to have an impact on the level of cover offered, with 68% of firms who offer death in service benefits increasing cover for employees in senior management positions.
The qualifying period for most organisations’ death in service benefit coincides with the completion of a probation period (43%), closely followed by firms who make it available from the first day of service (40%), followed by firms who do not pay-out this benefit until an employee has been at the company a year or more 18%). Despite the potential lag in eligibility for these benefits, a third (34%) of employees thinks they would be automatically entitled to receive this benefit within their probation period.
Research among employees reveals there are significant misconceptions about death in service benefits, with 43% of Brits believing this benefit only will pay out if they were to die in a workplace related incident.
When it comes to receipt of death in service benefits there can be a significant lag in payments, with HR professionals revealing that 14% of firms would not release the funds for up to three months or more. The average time for these funds to reach the nominated beneficiary, or appropriate discretionary trust, is one to two weeks from notification of death although 21% will do so immediately.
Almost a third (32%) of employers do not automatically pay death in service to a nominee (a person selected by the employee to receive it), instead the monies are paid into a discretionary trust. This means it is the company not the individual who determines to whom the benefit is paid. However, if this does go to a nominated recipient 66% of those eligible to nominate a recipient listed their spouse or partner, 15% would leave it to their parents and 9% would leave it to their children.
Direct Line Life Insurance business manager Jane Morgan commented: “There is a great deal of confusion and misunderstanding regarding ‘death in service’. While it would be an invaluable employee benefit for many families if the worst were to happen, the amount paid out is unlikely to cover their outstanding mortgage balance. This could leave families in a financially vulnerable position, especially having lost an income, adding extra pressure at an already emotional and difficult time.”
Subscribe to our newsletter to receive breaking news by email.