Money: Cut the cost of life cover

You are almost certainly paying too much for the policy
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The Independent Online
LIFE insurance isn't sexy. But money is, and thousands of people would have more money if they changed their life insurance. Sounds like a hassle? It isn't. All you have to do is check how much you are paying for a term insurance contract, which pays out a lump sum if you die during a fixed period. If you bought a policy at a bank, building society, or from a sales person working for a life company, you are almost certainly paying well over the odds. Look for a better deal that could save you thousands of pounds.

It's easy to swap contracts. Term insurance is one area where you should buy on price alone, and you don't need any specialist knowledge other than a little jargon. It's especially important to check on prices if you bought your insurance several years ago, because premiums have plummeted. Nigel Webb, senior manager at Equitable Life, says: "In the late Eighties there was an Aids scare and a lot of life companies hiked their rates in anticipation of higher claims, especially on term insurance. But the higher claims for term insurance didn't materialise, and people are living longer."

Figures from Legal & General, which has just dropped its rates, show how much the non-appearance of the Aids epidemic has affected rates. Five years ago a 35-year-old, non-smoking man would pay pounds 34 a month for pounds 100,000 of level life insurance over 20 years. That's now come down to pounds 14.70 a month. The same insurance for women is even cheaper, because on average they live longer: pounds 29 a month in 1993 and pounds 9.90 in 1998.

You don't have to do all the legwork yourself when you look for life insurance. There are several organisations that will survey commission- paying firms and then offer you a list of the best deals. According to one of these companies, Premier Select, the difference between the cheapest and costliest 10-year policy for a 40-year-old man is more than pounds 2,700 in total.

Bob Staveley-Wadham, at Premier Select, explains how the service works: "You give us your details and we will then send a list of premiums, from cheapest to most expensive, plus a guide explaining term insurance and our service. You select one and we send a formal quote from the insurance firm. For most companies we can reduce the premium - we rebate 20 per cent of the commission we receive. Some companies can't handle that, so in that case the client will get a cheque once the policy has been running for a year."

You have nothing to lose by calling one of these brokers because you'll get a policy more cheaply than you would if you bought it from the insurer. Then all you need to do is call a few firms that sell direct to the public (Virgin, Direct Line and Equitable Life are competitive). They don't pay commission so they won't be included on the lists you receive from a discount adviser. Pick the cheapest quote.

Before you buy, you need to understand the jargon used for this sort of life insurance. Almost anyyone with a repayment mortgage is likely to have a term insurance policy, and a policy to pay off the loan is usually "decreasing term insurance" - the potential payout will go down over the years as it matches the amount left to pay off on your loan. The premiums stay the same over the whole period. If you want to make sure your family would get a payout if you died, look for a "level term insurance" policy. Premiums and the payout will stay the same throughout the years that the policy is running. There are also policies that increase the payout so you don't get left behind by inflation. These "escalating" contracts are more expensive than level term insurance.

And if you think you might want to keep a life policy going for your whole life, not just the next 20 or 25 years, you can buy a "convertible term insurance" policy, which costs a bit more but allows you to change the policy at a future date.

A convertible policy also gives you the option to swap into an investment- based endowment contract.

You won't get your money back if you are still alive at the end of your insurance term, although there are a few companies, including Zurich Municipal, which offer contracts guaranteeing to return some of your money if you are still alive when the insurance expires.

Independent financial advisers can also help you find the best deal, although they won't share their commission. Linden Waller, at Dennehy, Weller & Co, says she has swapped a lot of clients to cheaper insurance. "Even though you are older than when you took the policy out, it's still cheaper to swap to a new policy and rates are still dropping."

Life insurers price their policies in five-year age bands, and you may get a shock if you are male, over 40 and trying to take out new cover. Peter Telford, head of life insurance at Legal & General, says: "Broadly, premiums can as much as double for getting five years older. If your existing policy is more than a few years old, it may not be worth doing." If you have suffered from a serious illness since you first took out a policy, it may also be better to stay with a current insurer.

The Association of British Insurers has recommended that its members only ask for information about positive HIV/Aids tests on application forms, so you should not be asked to reveal "lifestyle" information such as whether or not you have ever taken an HIV test. Be warned, however: if the insurer writes to your GP asking for further

medical information, it may ask more intrusive questions.

Most of the term insurance market is very competitive. But there are exceptions. The banks and building societies are charging well over the odds for life insurance. Why? Because all the high-street names have enormous captive audiences.

If you take out a repayment mortgage on the high street, for example, you may have to take out the bank's term insurance as well. The important thing to remember is that you aren't stuck with this overpriced cover: you can swap to another insurer in the same way as anyone else.

Some of the traditional life companies are even more expensive than the banks (see box on back page). That is usually because running a sales force that needs to be paid costs a lot of money. And ,of course, the customer has to pay. Equitable has low overheads and offers cheap insurance.

Ms Waller thinks firms that mainly sell through independent advisers have become very competitive. She says Scottish Widows, Legal & General and Zurich Life offer good value for money across the board. Perhaps the biggest disappointment is Nationwide Life, the life and pensions arm of the building society.

Rather than offering good value to its members, the society charges some of the highest premiums on the high street.

Carol Park, at Nationwide, says the society is aware its prices are "out of kilter" and says it will be reviewing them.

Contacts: Direct Line, 0345 3000233; Equitable Life, 01296 385200; Eurolife, 0171 454 0105; Legal & General, 0500 336666; Premier Select, 0990 834834; Scottish Widows, TO COME; Virgin, 0345 900900; Zurich Life, 0345 445505; Zurich Municipal,0800 147147.