Previously, only mandatory insurance products, such as car insurance, are fully protected. Other insurance policies are given 90 per cent protection with no upper limit.

The move, which follows consultation by the Prudential Regulation Authority, could cost the industry an additional £7m. That said, to date, there has never been a failure, so it is difficult to calculate the cost with any accuracy. It would also depend on the amount of investors involved.

Mark Stopard, head of product development at Partnership, said: “This announcement is good news as it provides people with total security. Not only do annuities guarantee to provide people with an income for life but even if the worst should happen, they can be secure in the knowledge that they will still receive regular payments from their annuity.”