Dot Pendlebury was conned by an Irish Life agent, Graham Holland, into parting with the cash after he promised to invest it safely on her behalf.
Holland, an Irish Life tied agent between October 1989 and January 1991, first stole pounds 5,000 when he persuaded Mrs Pendlebury to give him a pounds 47,000 cheque made out in his name so that he could invest it in an Irish Life bond.
A further pounds 26,000 disappeared after Holland convinced her to part-surrender her policy and lend him the money for a short while.
He initially claimed the cash had been placed back with Irish Life, later telling Mrs Pendlebury that he had invested it on her behalf with another company, Pearl.
Holland, who had an office in St Helens, Merseyside, was jailed earlier this month for three years, after being found guilty of a number of offences of theft and deception involving sums totalling more than pounds 200,000.
He had denied the charges, dating back to 1990, claiming the money had been legitimately invested in a company in London's Docklands, which later went bust.
Mrs Pendlebury said: 'I trusted him absolutely. When he said he was looking after my interests I saw no reason not to believe him. Since finding out two years ago that he had cheated me, I have been through hell and back.
'That money was supposed to be for my retirement. Through all this time I thought I would never see a penny of it again.'
She said she met Holland in September 1989, when she called into his office because she was worried about a pounds 45,000 investment then being handled by another broker. Holland arranged for the funds, by now worth more than pounds 49,000, to be paid directly to him in March 1990.
He allowed Mrs Pendlebury to have pounds 1,000 for each of her two sons, a further pounds 260 for a one-day trip to Boulogne, and told her the rest of the money had been invested with Irish Life.
In fact, he had already stolen the first pounds 5,000, placing just pounds 42,000 with the company. Holland also received pounds 2,500 commission for his 'investment advice'.
In August 1990, Holland contacted Mrs Pendlebury again: 'He asked me to to him a favour. He said he wanted me to lend him some money so that he could move into bigger offices next door.
'He brought some forms round and asked me to sign my name. After six weeks, when I asked him what had happend to my money, he told me not to worry, he had been gazumped but the money was back with Irish Life.'
Holland also persuaded his victim to surrender a further pounds 12,000 and invest it with another company, Reliance Mutual, claiming he wanted to spread her risks in the wake of the Gulf War. Reliance has since refunded all the money it received, with interest.
Over the next year, Holland continually reassured Mrs Pendlebury that her money was safe, eventually telling her it had been placed with Pearl.
It was only after Pearl denied receiving any funds on her behalf, in May 1992, that she contacted the police. Holland was charged in August 1992 and finally stood trial earlier this month.
Tony Dallison, head of marketing at Irish Life, said: 'It is quite clear from our investigation that one of our appointed representatives treated a client very badly. We have no problem with deciding that the money she lost should be refunded to her in full.'
No other Irish Life clients were defrauded by Holland.
The compensation from Irish Life follows a letter from the financial regulator, Lautro, to its members, telling them they must ensure their representatives do not mishandle clients' money.
Colin Hawtin, head of policy at Lautro, said the regulator's warning to members was not connected with this case. But the lessons were the same: 'People should exercise the same caution in dealing with an appointed representative as with any other case where they make a purchase.
'Never make a cheque out in the representative's name. Any investor who is asked to do that should refuse and immediately ring the insurance company's compliance officer.
'The number is on the business card every appointed representative must give a client to establish his identity.'