Where does responsibility lie for choosing the level of cover in death-in-service benefits?


Need to know:

  • Death-in-service benefits should be offered to all employees with a minimum level of cover.
  • Offering life assurance on a flexible basis places responsibility for selecting the level of cover on the employee.
  • Employers need to educate employees about life assurance to boost understanding.

Death-in-service benefits, in particular life assurance, are a common staple of a benefits package. The Employee Benefits Salary survey 2014, published in January 2014, found that life assurance was offered on an employer-paid basis to 84% of HR professionals. Indeed, many employers offer it to as many employees as possible so as to not demotivate lower-paid or newer staff.

But what is somewhat unclear, is whether communicating the need for and value of the benefit, as well as the level of cover, is down to employers or if employees should take responsibility for selecting their own cover.

Flexible responsibility

As death-in-service benefits have evolved to better suit the needs of today’s workforce, more options have become available, particularly when it is offered on a flexible basis. Chris Morgan, distributor partnerships manager at Ellipse, says: “Traditionally, life cover was employer-provided, but there is now a trend for employers to give staff options to suit them.”

Placing the responsibility for death-in-service with employees enables them to control the benefit according to their circumstances, says Mandy Rutter, senior clinical business manager, human solutions, trauma management and business continuity at The Validium Group. “I’d say death-in-service savings are 80-90% the responsibility of the employee,” she says.

Engage employees

When introducing a scheme such as life assurance, employers need to ensure staff are engaged with, and can see the value of, the benefit and how it relates to their lives. Morgan says: “The best packages give employees plenty of choice, but if the benefit isn’t relevant to them, they won’t engage with it and may even forget it.”

Communication, therefore, is vital to good engagement with death-in-service. Andrew Drake, head of rewards and benefits consulting at JLT Employee Benefits, says: “Employers need to make sure staff know what the benefit is and what their options are; helping employees have a clear grasp of what they’re actually being offered is essential. Staff won’t find value in what they don’t understand.”

This is the part of the life assurance equation that Matt Lawrence, workday practice Europe, the Middle East and Africa (EMEA) leader at Aon Hewitt, believes should solely lay with employers. Organisations need to continually educate staff about complex benefits, particularly as employees’ personal circumstances and priorities change. “Employers need to keep communication going with staff to find out more about them and their needs to raise appreciation and engagement,” says Lawrence.

Minimum cover

Although flexibility and choice are important when it comes to life assurance, it is also worth employers imposing a minimum level of coverage to make sure their employees are getting some form of effective cover.

A popular minimum level is four times an employee’s salary awarded to their beneficiaries should they pass away. But if an employer’s default is four times employees’ salary, around 90% of staff will keep to that default option even if their circumstances change, says Paul White, senior consultant at Punter Southall Health and Protection. “It’s fine for employers to give staff choices, but they need to impose a minimum option,” he adds.

Some employers may actively encourage employees to flex up their death-in-service package and increase their level of cover, but they need to be aware that this may not be financially viable for all members of staff. “One employee’s responsibilities can be very different to another’s, so employers should not necessarily be encouraging them to flex up because some may not want or need to,” says Lawrence.

The responsibility for the level of life assurance cover could be determined according to whether it is offered on a voluntary or employer-funded basis; the latter making it entirely the employer’s responsibility to chose a suitable level of cover.

Yet, while offering it as a flexible benefit empowers staff to make their own choices, employers still need to engage employees enough to make those choices, such as adding extra cover, says Lawrence.

Death-in-service can be a valuable benefit, but only with a reasonable default level of cover, effective communication and information, can organisations expect their employees to fully understand and engage with it.