Pay-if-you-die cover slashed: The fall in the cost of fixed-term life assurance could save home-buyers thousands of pounds

THE COST of fixed-term life assurance, usually bought as protection for a repayment mortgage, has come down dramatically in the last few months.

Home-buyers can save thousands of pounds over the span of a mortgage if they look around for the cheapest term insurance. And the market is now so competitive that anyone who has already purchased term insurance should check whether he or she can swap to cheaper cover.

Term insurance is a simple concept: the policy pays out only if you die. If you are alive at the end of the term you receive nothing.

Penny O'Nions, a doctor and director of the independent financial advisers De Havilland, said: 'Term insurance is like a one-armed bandit. You put money into it every month but unless it comes up coffins you lose.

'But for very many people term insurance is the most sensible form of life insurance because it is relatively cheap. Now is a good time to buy it. The premium rates are down quite considerably as the insurers realise that they have overplayed the Aids scare.

'The other factor is the huge competition in the market. Scottish Widows, in particular, is stirring things up with very competitive quotes.'

If you are looking for life insurance to protect the family, then ask for quotes for level term insurance, which has a fixed amount of life cover.

The cheapest cover for mortgages is a decreasing term insurance policy - a mortgage protection policy.

The policy pays off the mortgage if the borrower dies during the term of the mortgage. The sum insured goes down as the amount of the mortgage reduces.

There is no investment element in term insurance, so choosing a policy is largely governed by the cost.

How much you pay depends on your age, sex, whether you are a smoker or non-smoker, and the length of the cover.

There can be a huge disparity between the cheapest and most expensive quotes for term insurance.

Do not automatically take the policy presented to you by a bank or building society. The vast majority only offer the products of the one insurance company to which they are tied.

Most policies have premiums that are fixed throughout the term of the policy. Some term insurance policies, which appear cheaper, have reviewable premiums - they can be increased at intervals during the policy. Make sure you know what you are buying.

For a couple, a joint life policy, which usually pays out on the first death, will be cheaper.

The drawback of a joint policy is that one in three marriages ends in divorce. If you stop the cover and take out a new policy it will cost you more, as you will be that much older.

The premiums quoted for term insurance are based on a healthy man or woman.

Dr O'Nions says: 'Each insurer has their own underwriters. Some will load the premiums if you have a certain medical condition, some will load them if you have an unusual occupation. It is a good idea to submit applications to more than one insurance company.'

Whatever the salesmen say, not everyone needs life insurance. If you are single with no dependants then do not be bulldozed into buying. The only real point of buying now is that the younger you are, the cheaper the cover.

But if you do have a few pounds more to spend, you may want to look at convertible term insurance, which allows you extend the term or convert to an insurance contract that has an investment element.

A free leaflet, 'Life Assurance - A Matter of Life and Death', is available from London and Country Mortgages, tel 0800 373 300.

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