Borrowers with repayment or PEP mortgages may be paying more than twice as much as they need to for a life assurance policy on their mortgage, say financial advisers. And most of these policies can be swapped - "rebroked" in the jargon - at any time at minimal cost.
A typical saving might be pounds 50 to pounds 100 over a year, according to Jonathan Fry, an adviser with the Guildford-based firm Premier Investment Management. That might only amount to a few pounds a month - less than the saving from the latest round of mortgage rate cuts - but over the term of a mortgage, it can run into thousands.
Gordon Mackay, at the Leeds-based independent adviser Mac- kay Macpherson, found he could save an older borrower more than pounds 7,500 over the term of the policy. The monthly bill came down from pounds 155 to pounds 84 on a policy for pounds 70,000 with nine years left to run. The key point to emphasise, says Mr Fry, is that the big difference in prices is for a product - insurance that pays out when you die - which is virtually identical from company to company.
Rebroking is a good bet for making savings because life insurance premiums have been falling, in part reflecting a reversal of earlier hikes in premiums resulting from the Aids risk, but also due to increasing competition. Legal & General recently slashed its prices by up to 25 per cent.
And Richard Branson's Virgin Direct financial arm, which believes financial services are ripe for cost-competition, plans to launch a low-cost policy early next year.
Swiss Re, which surveys insurance market trends, says that the average drop in price over the past 18 months is around 10 per cent, although the difference between the best and the worst has broadened. Companies are also increasingly differentiating between higher and lower risk groups, so non-smokers and people with healthy lifestyles get better deals.
Very often, it is those people - the majority - who bought policies from their bank or building society, particularly in recent years, who stand to save the most by rebroking, say advisers. This can be true even of policies bought from life insurers with good reputations, such as Standard Life, whose policies most Halifax borrowers will have. Mr Fry describes the company's premiums as above average cost.
An independent financial adviser should be able to shop around for the best deal. Premier Investments offers a no-advice service called Policy Portfolio, which also rebates 25 per cent of its commissions, saving perhaps a further pounds 50 over the term of a policy. You telephone (01483-306090), and the firm sends you a free list of 20 companies and their premiums for your life showing the range from best to worst. But the service, as with those of many advisers, does not cover "direct" sellers such as Direct Line. Premier's Mr Fry says different companies are better for different lives. "No one insurer is the most competitive across the board."
There are a number of pitfalls:
q If your health has deteriorated significantly since you took out your original policy, you may well not be able to get a better deal.
q You will be older, so premiums will be higher because of the increased age-related risk. However, people who took out their original policies between 1989 and early 1994 are still likely to get a better deal by rebroking, say advisers, as a result of the general fall in premiums.
q Cancelling your policy should be little more trouble than cancelling a monthly direct debit. But beware of cancelling your old policy until you have new cover. Otherwise, you will be uninsured for a period of time.
q Your lender might conceivably try to cause problems, but they should not be insurmountable. Patrick Bunton, an adviser at London and Country in Bath, says it is rare for mortgage lenders to lock customers into a given term assurance policy as a condition of taking out the loan. Where the policy is "assigned" to the lender - the benefits are paid direct to the lender on your death - a fee of pounds 25-pounds 50 may be charged for changing.
q Do not assume that if you are already with, say, Legal & General, that you will automatically benefit from its new, lower rates.
q Although term assurance is a relatively simple "commodity-style" insurance product, getting advice can be worthwhile. Mr Bunton says an adviser should be able to point out, for example, that your policy should be written in trust to avoid death duties on your estate.
He may also point out which policies offer free terminal illness benefits, which are paid out before you die and which are reviewable. Most premiums are fixed at the beginning of the term. With reviewable policies, you may end up paying a lot more for cover for the same protection in subsequent years. Mr Fry also suggests people with personal pensions use a little- known facility to in effect buy the term policy through their pension plan. This gives tax relief at your highest rate on the insurance premiums.
q If you have an endowment mortgage, the life insurance you took out will be part of the endowment policy and you will not be able to benefit from rebroking in the same way as for repayment and PEP mortgages. Unlike simple term assurance, endowments are expensive to cancel.
The cost of life varies
Royal Insurance pounds 20.13*
Scottish Provident pounds 22.96*
Legal & General pounds 24.32*
Scottish Widows pounds 25.20
Zurich Life pounds 27.27
Direct Line Life pounds 29.13**
Allied Dunbar pounds 29.82**
Swiss Life pounds 30.65*
NatWest Life pounds 34.17
Clerical Medical pounds 38.10
Abbey National Life pounds 46.40
Barclays Life pounds 46.90
Source: London and Country Lifeline. Premiums are for non-smoking couple aged 30, for pounds 100,000 level term assurance over 25 years.
*Includes terminal illness benefit; ** premium subject to review - not fixed at outset.