Honesty may be the most expensive policy

Premium costs have dropped and you can save money by changing insurers. But there are pitfalls.

Personal computers and wide-screen televisions are not the only products to come down in price over the last five years. Life insurance, too, is now far cheaper than it was in 1995. Premiums have fallen so sharply that some people taking term assurance now pay half the amount someone the same age would have paid five years ago.

Personal computers and wide-screen televisions are not the only products to come down in price over the last five years. Life insurance, too, is now far cheaper than it was in 1995. Premiums have fallen so sharply that some people taking term assurance now pay half the amount someone the same age would have paid five years ago.

In general, life insurance gets more expensive the older you are. But in this market where premiums have been eroded, it may be worth giving up your old policy and shopping around for a new one, especially if you took one out when premiums peaked in the early 1990s.

"Ten years ago the prognosis for Aids was poor, and premiums were forced up to take account of that," says Tony Worthington of Swiss Re Life & Health. And death rates for people in their thirties and forties have fallen, as treatments improve.

Increasingly tough competition within the insurance industry has also beaten prices down. With the proliferation of direct sales channels, the cost of certain "commodity" insurance products such as term life insurance for policyholders between 25 and 38, has plummeted.

Legal & General cut the cost of its term assurance last year, bringing some premium levels down as much as 25 percent since the second half of 1995, says Peter Telford of L&G. Level term assurance premiums for a 30-year-old non-smoker on a 20-year term would now cost £11.90 a month with Nationwide Life. Less than two years ago those premiums were £18.20, shows financial data provider Moneyfacts.

Stuart Cliffe of the National Association of Banking and Insurance Customers says anyone considering switching life insurers must beware of pitfalls. If your health could be seen as having deteriorated since you took out your original policy, then premiums on a new policy would probably be far higher. People who have received treatment for high blood pressure, for example, could find themselves subject to a premium loading of 40 per cent. Problems can arise in the logistics of co-ordinating the end of one policy and the start of another. Ideally, you should allow for a few days' overlap between policies, and double-check then that the new policy is in force. "People should never stop a policy before the replacement is there," says Don Clark, managing director of discount brokers Torquil Clark.

Life policies are also usually paid by direct debit from your bank account. When one policy has been cancelled, make sure your bank stops the payment leaving your account. Similarly, make sure the premiums for the new policy are going to the insurer. Stuart Cliffe says some insurance customers could find themselves uninsured because of direct debit slip-ups.

Although advertised insurance premiums may appear cheaper than the one you are paying, finding out if an insurer will actually offer you a lower premium takes time. "Published tables are only standard quotes, and it's quite common to have a loading," says Mr Clark. Only when you have completed the detailed application form from the insurance company, and, if necessary, had a medical examination or given permission for the insurer to see your medical records, will you be given the final quote.

Mr Clark says it is possible for policyholders to save up to 60 percent in premiums by giving up one policy and taking on another on the same terms. Many people find they were paying more than necessary for their old policy simply because they were sold an unsuitable type of policy in the beginning. Or the policy may have become inappropriate due to a change in circumstances. And anyone buying insurance through a discount broker such as Torquil Clark can expect a cheque for rebated commission when the policy takes effect, equivalent to around 12 months' premiums.

Is it worth waiting for insurance premiums to fall lower? Mr Worthington says: "We think they will level off except in certain ages and at certain sums assured. Insurers tend to cherry-pick the best business ... and at those levels premiums will fall." Premiums were most competitive for people in their late twenties and early- to mid-thirties, and at sum-assured levels of between £50,000 and £100,000.

Some types of life insurance other than term assurance - for example whole of life assurance or renewable term insurance - may still be more expensive. Do not give up your existing policy before you have a new one in place, because you could find that a health complaint has rendered you uninsurable since you took out your last policy. "Be very cautious. It is possible to save money but you have to be careful how you go about it," says Mr Cliffe.

National Association of Banking and Insurance Customers:01291 430 009 Torquil Clark:01902 570570

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