The cost of life insurance for UK policyholders is set to decrease after new pension rules come into effect from April 6, 2006, allowing the price to be offset against tax.

The new rules put a limit on annual savings for pensions of GBP215,000 but allow for part of this limit to pay for life insurance cover, called pension term insurance. Tax relief can be claimed on premiums at the rate of 22% for a basic rate tax payer and 40% for a higher rate payer.

The policyholder does not have to pay into a pension to qualify. The overall saving will not be as much as 22% or 40% because the underlying cost will be higher, but premiums will still be reduced with the tax relief.

Insurers are expecting a surge in interest when the new rules come into effect. However, many experts are warning people to consider the implications of using the tax break for their cover. Pension term insurance does not offer the add-ons available with normal insurance such as critical illness cover. Joint-life policies are also not an option.