Salesmen will have to give an early indication, in cash, of commission earnings. These often swallow up the first year's premiums paid into savings policies, such as the endowment plans that millions use to pay off their mortgages.
It can often take more than five years for policy values to catch up with the amount paid in.
The new rules, to be introduced by the industry regulator, will apply to all salesmen whether they are tied agents working for one company, including the banks, or independent advisers selling a range of products. Personal pension plans are also covered.
Kenneth Clarke, the Chancellor of the Exchequer, wants so-called 'hard disclosure' by next year, a change the life insurance industry has resisted for years.
In a veiled threat, Anthony Nelson, Financial Secretary to the Treasury, said: 'It will be widely misunderstood if improved disclosure is obstructed.' Mr Clarke largely endorsed a recent Office of Fair Trading report on life insurance, which found the rules governing its sale restricted competition.
He is demanding changes which will require greater disclosure of surrender values throughout the policy term, encourage competition between tied sales firms and force companies to quote their own charges rather than notional ones when calculating the possible benefits of their policies.
Jean Eaglesham, of the Consumers' Association, said: 'We've got what we wanted at long last. It is disappointing it took government intervention to drag the regulators into giving us it.' She would have liked the Government to make companies reveal how many policies are cancelled early - a key measure of the quality of advice given.
The Association of British Insurers said it would be difficult to find a way for tied salesmen to report a meaningful figure comparable with the commission paid to independent advisers. Company salesmen often receive numerous other benefits such as cheap loans, training and business development help.
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