Israel Mandates 10-Year Minimum for Life Insurance Discounts

Israel's Capital Markets, Insurance and Savings Authority has issued new regulations requiring life insurance companies to maintain initial discounts for at least ten years, ending the practice of offering steep early discounts that gradually diminish. The new rules, set to take effect in February 2027, aim to prevent consumers from being lured by low initial premiums without considering the long-term costs, which can increase significantly later. Under the new directive, a 30% discount must remain at 30% for a decade, though companies can offer larger or longer discounts. This change will affect new life insurance policies for death (risk) coverage and related benefits, excluding group insurance. The Authority acknowledges that new policyholders might face higher initial payments under the revised system, as companies may reduce initial discount percentages to comply with the ten-year minimum. The regulations also mandate that insurers provide policyholders with advance notice, one month prior to any reduction or termination of a discount, detailing the existing and new discount rates and the corresponding monthly premiums.

The transition will be gradual, as the rules apply only to new discounts established from February 2027 onwards, while existing policies and discounts will continue under their original terms. This reform is expected to shift competition among insurers from offering the largest first-year discounts to demonstrating sustainable long-term pricing. The change is significant as many Israelis have life insurance through pension funds or for mortgage purposes, making the long-term cost assessment crucial when purchasing such policies.