The price isn't always right

In the second part of a series on life assurance, Andy Couchman says that making the right choice is crucial

Life assurance is one of the few types of insurance where the cost has fallen in recent years and, in an increasingly competitive marketplace, there are now bargains to be had.

Insurers sold 3.3 million new life assurance policies last year, 10 per cent more than in 1996 - not bad for probably the only form of insurance where you are usually guaranteed not to get the benefit. Now, two out of three people have some form of life assurance to protect partners, children or business.

When it comes to choosing life cover the starting point is how much life assurance you need, if any. If you have no partner, dependants or business, you may have little or no need, but otherwise the general maxim is more is good. The only problem is that more cover equals more cost.

Derek Brown, of Cheltenham-based independent financial advisers Warwick Butchart Associates, says that most people look to have four times their income, plus enough capital to generate 75 per cent of their income until their children are grown up or their partner reaches retirement age.

For someone in their 20s on pounds 20,000 a year with a partner and young children, that means pounds 80,000 plus a further sum of up to pounds 300,000. That is what you would need to invest at 5 per cent to give the required income of pounds 15,000 a year. If your children are older and your partner is working the need may be substantially lower.

Many people will already have insurance of up to four times their income built into their company pension, and most mortgage lenders will have arranged for their loan to be covered in the event of your death. That may be through a term or mortgage protection policy or with the built- in life cover of an endowment plan.

While that will remove the worry about paying your mortgage repayments, it will not provide an income for your dependants.

If you need to buy insurance, what are the options, and is now a good time to buy? Like many others, General Accident Life, the market leader, has recently reduced its rates partly because people are living longer and partly because the Eighties threat of Aids has not become the nightmare scenario many feared.

Ian Bullock, the company's marketing manager, adds: "Improved technology has made it possible for us to process more applications more efficiently - and we're passing those cost savings on to the customer."

He points to term assurance being better value than ever before and says that many people are surprised at how low the premiums are. Mr Brown agrees, recommending family income benefit as perhaps the cheapest cover, especially if the need is only until the children are grown up.

This pays an annual sum from the time you die until a fixed date in the future, so the longer you live the less it pays. Like all term assurance, unless you die during the term, it pays nothing.

The table above shows some of the main types of life assurance, their pros and cons and, using General Accident's rates, an indication of their relative pricing.

Generally, the higher the cover the more the benefits, but that is not always the case. Ian Bullock suggests asking three questions:

n Are the premiums guaranteed throughout the term?

n Are premiums the same regardless of where I live?

n Is the price the lowest in the market?

Whole-of-life and endowment policies differ from term assurance in that they build up a cash value over time. The former can be set up with level premiums throughout life or on a sort of supercharged or extra-cover basis, where premiums are very low initially and then rise sharply after five or 10 years. By then your income may have risen too, so they can be attractive if you want cover for a longer term.

Above all, when it comes to choosing cover, remember that it is up to you to decide how much cover you want and for how long you need it. Then choose the company and the plan that offer the best benefits at the lowest cost.

Monthly magazines such as Planned Savings and Money Management can help, but unless you know precisely what you want it often pays to use an independent financial adviser.

General Accident Life: 0500 100 200; Warwick Butchart Associates: 01242 584144; for a list of independent financial advisers near you call IFA Portfolio on 0117 9711177.

Andy Couchman is publishing editor of `HealthCare Insurance Report'.