Bereaved family members will receive the lump sum that is worth roughly twice the average pensionable pay for NHS staff, with the cost met by the government.
The payment will also cover those who have temporarily returned to frontline services to help fight the virus, as well as overseas staff who may not have joined the NHS pension scheme.
The Department of Health and Social Care said the scheme will cover full, part-time or locum NHS and public health workers, including GPs, dentists, retired staff and second and final year students taking up paid frontline roles.
Within social care, the scheme will also cover employees of publicly funded care homes, home care, directly employed carers including personal assistants and frontline child and family social workers.
The new insurance scheme will apply to employees who already have death-in-service benefits through the NHS pension scheme.
Health and social care secretary, Matt Hancock, said: “Nothing can make up for the tragic loss of a loved one during this pandemic. We owe a huge debt to those who die in service to our nation and are doing everything we can to protect them.
“Financial worries should be the last thing on the minds of their families so in recognition of these unprecedented circumstances we are expanding financial protection to NHS and social care workers delivering publicly funded care on the frontline.”
He added: “We will continue to strive night and day to provide them with the support and protection they need and deserve to keep them safe as they work tirelessly to save lives.”
Dame Donna Kinnair, chief executive and general secretary of the Royal College of Nursing, said: “On the eve of the silence to remember those who paid the highest price, this announcement will bring reassurance to families in difficult situations.
“No amount of cash can make up for a family member who passes away but financial security should never add to the worries of those in grief.”
“It must be easily accessed, open to those in social care and primary care too and be paid promptly – no family should face a lengthy or complex process.”
UNISON general secretary Dave Prentis said: “It’s only right the families of all those who worked for the NHS or in social care, and who’ve sadly lost their lives to the virus, are properly provided for.
“Until now, the relatives of any low-paid health worker who died and had opted out of the NHS pension scheme would’ve received nothing. Nor would the families of care workers on precarious contracts. Thankfully now that wrong has been put right.”