Homeowners should not be relying on life insurance from their employer if they have dependants who would be unable to pay the mortgage if they died.
According to survey of HR directors in the UK by insurer Direct Line, the average payout on death-inservice cover – a form of life insurance provided in the workplace – is between one and two years’ salary and worth in the region of £27,600 and £55,200.
However, if the family of the deceased was relying on this payout to pay an outstanding mortgage, they would typically face a shortfall in the region of £67,678.
Direct Line says that 89% of employers offer death-in-service benefits, yet worryingly 17% of employees did not know what it is and 11% did not know whether it was provided by their employer. Of those that were aware of the benefit, 42% did not how much it would pay out.
Although between one and two years’ salary is the typical payout, 5% of employers pay less than a year, while others are more generous. Between three and four years’ salary is paid out by 18% of employers.
Not all employees may be eligible to claim, however. Although 40% of employers offer the benefit to staff as soon as they join the business, 43% make them wait until they have completed a probation period. Almost two in 10 (18%) require staff to have been employed for a year before they are eligible.
Jane Morgan, business manager at Direct Line Life Insurance, comments: “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.”
She adds: “Life insurance is not something anyone wants to think about. It’s easy to say 'I'll think about that later' or put it off for a rainy day, but it's important to be prepared for your financial future, no matter what life may bring. Although it can appear intimidating, it’s important to plan for your financial future; it’s not as boggling or as expensive as you might think.