Many employers offer 'Death in Service' insurance as part of the package of benefits they provide to employees.  Read our guide to help understand how it works - and what the difference is between this and private life insurance.

‘Death in service' is a type of life insurance provided by employers and usually linked to a company pension scheme. The participating employee is normally covered for around three to four times his or her salary should they die while they work for the company. Family or other dependants would receive the lump sum free of tax.

It's a good employee perk, and it can seem free because it is bundled in with the pension package. It is also possible to insure a partner or spouse's pension benefit, which ensures that the surviving spouse still receives a regular income on the death of the employee. Typically up to 4/9th of a salary can be insured as a pension.

In addition, many work schemes now offer 'flexible benefits' where the employer pays for a core amount (say two times your salary) and the employee can then choose to have additional cover on top of this. Many employers also now offer 'voluntary benefits' where the employee chooses and pays for the level of cover they want.

Usually, if your employer offers a ‘death in service' benefit as part of your pension package, you will complete a form indicating who you would like the lump sum to go to. However, the pension scheme trustees do have full discretion over the payment of the lump sum so can choose to pay it to whoever they feel is most deserving, for example,  someone financially dependent on the pension scheme member. However it is highly unlikely that the trustees administrating the pay-out would go against your stated wishes.

Although a ‘death in service' benefit package from an employer can certainly help family or dependants should you die during your working life, it is important to recognise its limitations and distinguish it from privately held life insurance.

What's the difference between this and a private life insurance policy?

As with an increasing number of death in service insurance schemes, your own life insurance policy can in some circumstances be selected in order to help you to meet individual requirements, such as size of debts, number of dependants, or the level of premium you want to pay.

In recent years mortgages have gone above the historic three and a half times salary limit, and joint mortgages can be two and half times the combined salary. So with a £30,000 salary, the original loan amount for a mortgage could be £105,000 or more. In the case of an inflexible, standard 'death in service' scheme the payment may only be £90,000 on the same salary. Obviously for flexible, tailored 'death in service' schemes this would not be true.

If one of the pension holders dies, a ‘death in service' pay-out may or may not cover the mortgage debt. If it did, it is possible that there may not be enough left to cover funeral expenses and leave dependants in a comfortable financial state of affairs, depending on the type of scheme that your employer offers.

Additionally, the benefit will end once you leave a particular employer, unlike other forms of life insurance which will cover you no matter where you work and even once you retire. With some policies holders can maintain the benefits if they move abroad to certain countries.

You want to be assured of your dependents' financial well being in the event of your death. It may  be the case that consideration of life insurance - beyond the ‘death in service' payout offered by your company - is necessary.

Sainsbury's offer a range of financial services including life insurance (life assurance), pet insurance, personal loans and savings accounts. Visit www.sainsburysbank.co.uk for quotes and more information.