Term assurance, a life insurance product that pays out if you die within a period specified by the policy, is the cheapest form of life insurance you can buy - and it is getting cheaper. Premiums have fallen dramatically over the past year, said Moneyfacts, the financial information research group.

Most commonly, term assurance is taken out by homeowners to cover a mortgage, or by parents to cover the period while their children are growing up. If paid out, a lump sum or regular income is provided for dependants.

An influx of providers recently has seen competition hot up and premiums slide. In particular, execution-only players that deal directly with customers, such as Marks & Spencer Financial Services, are cutting costs and premiums.

Analysts agree that the other key driver for the downward trend is that the UK Aids epidemic predicted in the early 1980s did not happen. Martin Campbell, research and development manager at Virgin Direct, said: "Many of the traditional life insurers panicked in response to the Aids scare and loaded premiums excessively - or what has turned out to be excessively." As a result, rates have subsequently fallen.

In the past year alone some providers have cut monthly premiums by as much as a third, said Moneyfacts. For a 30-year-old male smoker taking out £100,000 cover over 20 years, Nationwide Life has cut its premium from £18.20 to £11.90. Barclays Life has reduced its rate from £17.30 to £13.10. And these are not even the most competitive rates.

Marks & Spencer, which is making no secret of the fact that it is bidding for business by squeezing its rates, said that having already cut rates by 26 per cent a year ago, it was last month forced to lop them by a further 6 per cent.

Mark Dampier, head of research at Hargreaves Lans-down, the independent financial adviser, said: "It is a purely cost-driven decision - you are just going to go to the cheapest people."

As with all insurance, rates vary according to set criteria, such as age and whether or not you smoke. Moneyfacts said those providing some of the most competitive rates include Equitable Life, which charges a monthly premium of £9.65 for a 30-year-old male smoker insured for £100,000 over 20 years. Its closest rival is Legal & General, at £14.10. A 30-year-old male non-smoker who wants the same level of cover should go to Scottish Widows, which charges £9.

Rates are lower for women because they are expected to live longer. A smoker will be charged a monthly premium of £7.11 by Equitable Life for £100,000 cover over 20 years, while a non-smoker can pick up insurance from Marks & Spencer for £6.65 a month. Other competitive providers include CGU Life, Guardian Financial, Scottish Provident and Direct Line.

Despite the downward slide in rates, there is still a huge difference between the most and the least competitive rates. The worst offenders are traditional banks and building societies, who "can get away with charging two, maybe three times the amount of leading providers", said Mr Campbell. Many sell term assurance on the back of a mortgage "almost as an afterthought", he added.

Mr Campbell added: "One of the reasons that they get away with it is because term insurance is pure protection - you are not paying for any investment, so it does look cheap. People almost dismiss it, but it makes a big difference when you are paying it every month for the next 25 years."

But some of the rock-bottom rate direct providers also come in for criticism. Mr Dampier said: "Some of the direct people are trying to take the crème de la crème business - a lot of those companies cherrypick." He said many direct players offer favourable rates for young, healthy customers, while raising rates for those in the high-risk categories. The solution, he said, is to shop around. Because rates have fallen so far, he advised those with existing term assurance policies to dig them out and check whether they could buy cover more cheaply elsewhere. "You really ought to look at it as you would a car insurance policy. You can re-broke it. If you can save a fiver a month, it is stupid to throw that money down the drain." He warned policyholders to consider carefully before making the switch. Those with a Scottish Widows policy, for example, could lose out on a windfall payout by changing providers.

On top of standard level- term policies, where the amount you are insured for stays the same over the life of the policy, so decreasing in real terms, there are a number of different types of term assurance products.

Increasing-term assurance, where the sum insured rises each year by a fixed percentage of the original sum insured, enables you to keep pace with inflation. These are more expensive policies.

Conversely, decreasing-term products see the sum insured fall by a fixed amount each year - decreasing to nothing at the end of the term. This makes them cheaper Convertible-term products, that allow you to switch your policy to a whole of life or endowment insurance at a later date without giving further evidence about the state of your health, provide cheap cover at the outset, and a more sophisticated policy in later years.

Renewable-term gives you the option to take out a further term policy after a specified period - again without giving further evidence about the state of your health.

But it will cost you, said Mr Dampier: "As soon as you start adding bells and whistles, the price starts to go up."

www.times-money.co.uk/insure;

M&S 0800 363422

Virgin Direct 0845-610 1030

Equitable Life 0171-606 6611

Legal & General 01273 826100

Scottish Widows 0845-378 7878

CGU Life 0800-0131 231

Guardian Financial Services 01253 733151

Scottish Provident 01310-556 9181

Direct Line 0845-3000 733