The Government has set aside half a billion pounds for the scheme over the coming year.
It aims to eventually pay out £1.4bn to 982,000 policyholders.
The Equitable Life scheme was set up to make payments to policyholders who suffered financial loss as a result of Government maladministration.
Policyholders do not need to contact the Government as it says it will be writing to all eligible policyholders by June 2012.
Oldest policyholders will be prioritised first alongside the inheritors of deceased policyholders.
Some 37,0000 with profits annuitants will share £620m in annual instalments while they remain alive as they have been judged to have lost the most while the remaining 945,000 will share £775m in the form of lump sums.
Mark Hoban, financial secretary to the Treasury, said: “After a decade of delay and indecision, I am delighted that today we’re beginning to send out cheques to eligible Equitable Life policyholders.
“We will pay out £1.5billion to ensure that policyholders receive the justice they deserve.”