Is your workplace insurance enough?

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Are you one of the record number of women now in work? Do you receive death-in-service benefit from your employer? If so, you might think you don’t need life insurance, but it’s not that simple, and it might not even have crossed your mind.

There are some very important differences between death-in-service benefit and life insurance. Understanding the differences between the two will help you put the most effective financial safety net in place for your loved ones in the event of your death.   

The right level of life cover

The first thing to think about is whether your death-in-service benefit provides a sufficient level of cover. The benefit offered by employers varies, but in many cases, it’s between two and four times your yearly salary.

Let’s say you earn £35,000 a year and your employer offers you a death-in-service benefit of four times your yearly salary. If you die while employed, your loved ones would receive a tax-free lump sum of £140,000.

How far would that go in paying off the mortgage and meeting the cost of the additional childcare needed after your death? Would it be enough to take the financial strain off your partner and to make sure your children’s standard of living wasn’t affected? It may not go quite as far as you hope when you consider the average price of a home in England is £234,250.

Patch up the holes in your safety net  

The average worker in the UK will have six different jobs during their career. It’s unlikely that you’ll move seamlessly from one to the other, and there might be time off in between jobs while you either look for a new position or while you wait for your new position to start.

Your family will only receive a lump sum from your death-in-service benefit if you die while you’re actually employed. Therefore, if you’re between jobs there’s no cover in place. This could make it very difficult for your family to cope financially if you died at this time.

When you do find a new job, the level of death-in-service benefit might not be the same and your new employer might only offer two times, rather than four times, your yearly salary, for example.

This change in the level of death-in-service benefit could leave a hole in your financial safety net, and that hole becomes more expensive to fill yourself the older you get.

Minimising the monthly cost of insurance 

Life insurance costs go up with age, so the longer you put off buying cover the more you’ll have to pay. Your health may also change over time which will also have an impact on the cost of life insurance and could even prevent you from getting cover.

In 2013, 473 women were diagnosed with cancer every day. By the age of 75, one in five women will have had a stroke, and so, as awful as it is to think about these things, we know a lot of women are affected by health issues unexpectedly.

If, however, you buy life insurance when you’re young and healthy, you’ll be able to secure a low monthly cost that won’t change - even if your health does.

Personal life insurance provides flexibility

Protection insurance works best when it’s tailored to your exact needs, and taking this bespoke approach will mean you only pay for the cover you need.  

Death-in-service benefit isn’t very flexible. You have to be on your employer’s payroll and some firms will demand that you’re part of the company pension scheme to be eligible for the benefit. It pays out a fixed multiple of your yearly salary, regardless of how much you actually need.

Life insurance is a lot more flexible and you can work out exactly how much you need and then buy cover at the precise level you want. You can also decide how long you want the cover for and match what it pays to a changing debt, such as your mortgage.

For example, if you buy decreasing life insurance, the amount it pays out will go down in line with your decreasing mortgage debt. As the level of cover decreases, so will the cost.

To help you work out your protection insurance needs, we’ve designed a personal liability audit that will help you get an accurate picture of your financial situation. Once you’ve got this in place, it will be easier to identify the level of protection you might need to safeguard it. Speaking to a financial adviser can also help you tailor protection cover to your individual needs and budget. 

Death-in-service benefit can make up an important part of your financial safety net, but it’s not a substitute for life insurance. By using the two in tandem, you can take advantage of what your employer offers, and make sure the right level of financial support is there for the people that rely on you.