It's your life, so shop around

There are two different types of life insurance. On the one hand are policies that only provide protection, insuring a life for a guaranteed sum but giving no return if the customer outlives the policy term. These include term assurance and mortgage protection.

On the other hand are investment-linked policies. These include with- profits, both whole-life and endowment (in effect term policies), and all unit-linked plans. These normally carry a minimum guaranteed sum which is paid out on death or at maturity if the policy has not performed as well as the insurer had hoped. The intention, however, is that the insured will receive much more than the guaranteed minimum at the end of the term.

Protection plans are cheaper and provide adequate cover for most people who take out insurance for a loan. A good 20-year term assurance plan for a 30-year-old should cost pounds 6 a month or less for pounds 50,000 worth of life cover. Mortgage protection for the same amount over 25 years would cost 50p to pounds 1 a month less.

Looking at recent results, it would have cost around pounds 30 a month to buy a with-profits policy that paid out pounds 50,000 after 20 years. The policyholder would only have paid interest during the course of the loan, with the proceeds at maturity paying off the capital borrowed.

In the past, home buyers were often talked into buying endowment policies to pay off their mortgages. The lenders received large amounts of commission from the insurance companies for selling these policies. Unfortunately, some of the plans purchased in the past decade are failing to perform as the insurers had projected. Many policies may not, therefore, provide enough to pay off a mortgage, and policyholders in these cases are and being asked to increase their premiums to cover any shortfall.

When comparing the different plans, make sure you look at the charges and how much commission is being paid. The higher these are, the less money there will be to grow.

It's the same with pensions. Now that we are becoming more aware of how much pension firms have been charging, they are having to look again at their plans to restore public confidence. Anyone taking out a pension should check whether it has a "waiver of contributions" option. For about 1 per cent of the premium, this ensures the policy continues if the purchaser can't pay because of illness or accident.

Some pension schemes also let you include some life insurance. If the cover is bought through a pension, it gets tax relief at the policyholder's highest rate of income tax.

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