Death in Service Schemes – Getting the Fundamentals Right

Offering financial protection to employees and their families is a cornerstone of any responsible benefits strategy. One of the most impactful - and often overlooked - ways to provide this support is through a Death in Service (DIS) scheme.

In simple terms, a DIS scheme pays a tax-free lump sum to an employee’s nominated beneficiaries if they pass away while still in employment. It’s a cost-effective way for employers to show they value their people - and for employees, it brings genuine peace of mind.

Why Offer a Death in Service Benefit?

For many employees, knowing their loved ones will be financially supported in the event of their death is just as important as a pay rise or bonus. A well-run DIS scheme can:

• Provide financial security to dependants during a difficult time

• Act as a meaningful, low-cost benefit that enhances the overall employee value proposition

• Help improve retention, morale, and loyalty, particularly when clearly communicated and consistently delivered

  
  

Lump sum benefits are typically expressed as a multiple of the employee’s annual salary - commonly two to four times - though this can vary depending on the organisation’s budget and risk profile.

Setting Up a Scheme: Key Considerations

Getting the structure right from the outset is vital. A few fundamental questions must be addressed:

1. Who Will Act as Trustee?

To ensure benefits are paid quickly and tax-efficiently, it’s standard practice to hold the scheme in trust. This keeps the benefit outside the employee’s estate and can avoid inheritance tax. Appointing an independent trustee brings neutrality, compliance expertise, and professionalism to both day-to-day governance and claims processing.

2. Who is Covered – and When?

Eligibility should be clearly defined in scheme documentation. This might include all full-time employees after a set probation period. Clear, consistent eligibility rules help avoid disputes and ensure fairness across the workforce.

3. Who Receives the Benefit?

Employees typically complete a nomination form, naming the individuals they wish to receive the lump sum. However, the final decision legally rests with the trustee, who must assess each case in line with Revenue rules and act in a fair and balanced way.

4. What About Employment Changes?

Coverage during events like unpaid leave, career breaks, or contract changes should be carefully addressed. Employers must regularly update records and communicate any changes to employees.

5. Are Records and Nominations Up to Date?

It’s surprisingly common for nomination forms to be missing, outdated, or stored poorly. This can delay payments and create avoidable stress for bereaved families. Regularly reviewing and updating these records is a simple but essential step in scheme maintenance.

A Word on Claims

The true value of a DIS scheme is revealed at the point of claim. When a tragic event occurs, speed, clarity, and compassion are essential. Trustees must be able to quickly confirm eligibility, assess the nomination, and arrange payment with professionalism and empathy.

Having robust governance processes in place ensures that the scheme delivers when it matters most - and that the employer’s commitment to its people is honoured in a meaningful way.

Final Thoughts

A Death in Service scheme is one of the most practical and appreciated benefits an employer can offer. It’s relatively low-cost, provides real value to employees and their families, and signals a long-term commitment to staff wellbeing.

When carefully structured and properly managed, a DIS scheme not only supports employees - it strengthens your culture, reduces risk, and enhances your employer brand.

Source: Helen Doyle, ITC, 22nd October 2025